Michigan Mortgage Rates Continue to Improve After Last Weeks Fed Announcement

Mortgage rates continue to get better after last weeks Fed announcement raising the rate by .250%.  But, wait a minute, did you say that mortgage rates continue to get better after the Fed RAISED the rate?  Yes, because when the Fed raises the rate it is raising the rate at which depository institutions lend other depository institutions overnight, more here on that.

While this is an important benchmark in financial markets and an important economic indicator, they do not directly affect long term mortgage rates.  In fact, when the Fed raised the rate last week (3/15/17) pricing for Mortgage Backed Securities (MBS) improved pushing long term mortgage rates lower.

Long term mortgage rates are affected by the trading of MBS.  MBS prices are not always accessible and you typically have to pay a company to receive updates for them.  So, the indicator to watch is the 10 year treasury.  As with most stocks, bonds and other investments MBS and the 10 year treasury is very news sensitive.  Typically, the higher the price goes, the higher mortgage rates go.  This is not always the case, but they do mirror each other most of the time.  More on the 10 year treasury here.

So, the next time the Fed says it will raise rates, understand that it may or may not directly affect long term mortgage rates.  More importantly, it’s whether the MBS investors view the news as positive or negative for the economy.

2018-01-27T01:01:46+00:00