The factors that influence mortgage rates actually change day by day, but in general, mortgage rates reflect what’s happening with the economy as a whole. When the economy improves, rates go up.
In the second week of April, mortgage rates for a 30-year fixed-rate mortgage set comfortably at 3.25 percent. Rates for 15-year mortgages were at 2.5 percent. But you can get an idea whether rates are moving up and down by watching other economic figures.
While a fraction of a percentage point may not at first seem to make much difference, a change of .125 percent or .25 percent could change the amount you must pay for your home by thousands of dollars each year. That’s significant.
2013 Mortgage Rates So Far
Mortgage rates have been fluctuating because all economic indicators don’t agree on the state of the economy. The mortgage market has been weak in 2013 because of many factors, including Fed buying expectations. Bad labor market data has also impacted numbers.
In April, the factors that influenced mortgage numbers can best be described as fluctuating, with no clear direction established, despite some positive indicators for the nation’s economy.
Specifically, there’s a positive trend in much of the nation regarding the home-buying market. There’s little to indicate that rates will drop significantly — and much to suggest that they’ll continue a generally upward trend.
How Mortgage Rates Are Determined
A lot goes into deciding mortgage rates, but you can best judge how things are going by watching the movement of the 10-year Treasury bond yield. Although most people take out 30-year mortgages, most of those agreements are refinanced or paid off within a decade. That means the 10-year bond rate is the ideal indicator of interest rate changes. Also, these bonds are traded in such a way that they compete for the same investors as long-term fixed mortgage bonds.
If the details are a bit too technical, that’s okay. They don’t tell the whole story anyway.
Supply is important too. If there are lots of loans in a given period, the supply of mortgage-backed securities can rise to a level beyond what investors are willing to buy. The price, then, will have to go down to make them more attractive to buyers. The yield will rise, and so will mortgage rates.
The Fed scoops up those mortgage-based securities so they can control mortgage rates, hopefully keeping home prices stable and getting more buyers into the market.
Timing, inflation and other factors are involved too. And the Fed itself can influence the market based on the statements it makes, further complicating the issue.
The Bottom Line
While the explanation can get a bet technical, the general idea is that the state of the economy as a whole has a direct relationship with the state of mortgage rates. Since indicators suggest that the economy is improving, rates are likely to continue to climb.
But they’re still on sale. Rates are lower than they’ve been throughout most of modern American history, making this a great time to buy a home. That window of opportunity, however, is sure to continue very slowly closing.
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Brian Talley is an Austin Realtor® and the owner of Regent Property Group, a boutique brokerage specializing in Austin luxury homes on Lake Austin.