Understanding the Current Financial Climate

by Susan Costello, Well Fargo Bank

Are you wondering if mortgage rates drop as fast as the Fed keeps lowering the benchmark interest rate (which is now effectively at zero)? While there is an indirect correlation between the Fed funds rate and mortgage rates, here are the factors that more immediately impact mortgage rates:

1. 10-year Treasury note – When there is a national or global emergency, and especially when the circumstances effect economic conditions and/or are a surprise or unprecedented event, investors pull money from stock markets and load up on bonds. Bonds are considered a safe haven for assets. It becomes a matter of supply and demand: investors (foreign and domestic) flood the bond market with money driving yields on Treasuries down to new lows. Lower Treasury note yields, especially on the longer term 10-year Treasury note, translate to lower mortgage rates. 

2. Employment numbers –What impact will current conditions have on employment over the balance of 2020 is something to keep an eye on. If employment figures show weakness, rates are likely to stay low or go lower.

3. Inflation – We remain under the target 2% rate, the level we have enjoyed for quite some time now since the recession recovery. If this continues, rates are likely to stay low.

4. Crowd Sentiment – This is my personal gauge: as a lender for over 20 years, I’ve learned to keep a watchful eye on how society as a whole is reacting to news, good and not so good. Because crowd sentiment is very much a driver of what people will do with their money and how they’ll behave as consumers which is a huge driver of our economy. I am advising clients that now is an opportune time to be a buyer. They stand a good chance of not having quite as much competition for properties, and the rates we’re locking in give them even greater buyer power than they would have had just 3 weeks ago. Plus I anticipate that as soon as we come out of this current state of jitters, there will be a major amount of pent-up demand and thus once again, fierce competition. Those who followed this advice in 2008 – 2010 prospered/profited enormously.