Why You Shouldn’t Expect a Rapid Drop in Mortgage Rates
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Here's your money briefing for Wednesday, August 14th. I'm Arianna Espuru for The Wall Street Journal, filling in for J.R. Whelan. Sharp stock market declines earlier this month led to a quick dip in mortgage rates. But some key factors that influence the rates lenders offer aren't budging, meaning rates could stay high.
Mortgage rates have a few things kind of priced into them. And people kind of got really nervous at the beginning of last week about the economy and about the market. That ebbed over the course of the week. That meant that stock prices came back up. Treasury yields came back up. Mortgage bonds came back up. Because what the bank is quoting you as a mortgage rate is sort of based off of all that. A lot of those daily measures that we also check in on, we saw those kind of going back up over the course of the week.
Wall Street Journal heard on the street columnist Telus Demos joins me to talk about it after the break.
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How did last week’s stock market drop briefly lower mortgage rates?
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bad news for the stock market could be good news for home borrowers. WSJ Heard on the Street columnist Telus Demos joins me to discuss. Telus, earlier this month, we saw a huge dip in the stock market. And in turn, the market saw rallies in treasuries and mortgage-backed securities. Why is that?
But that's a classic flight to safety trade. So when what people call risky assets like stocks are going down really fast or a lot or sort of unexpectedly, a lot of times what you'll see is people will run to what they consider generally more safer assets. And oftentimes that includes debts of the U.S. government. So you have treasury bonds and then you have mortgage bonds, which they're considered much safer sort of things to hold than stocks are. And so What you see is very typical in a situation like this. You see prices going down. You see treasury yields going down. And mortgage bonds, which in some ways are priced off of treasury bonds, those usually move in the same direction as treasuries do in those situations.
You just touched on this a little there. But the big question in your story is all about when we may see these mortgage rates go down. How do the price of those treasury bonds influence mortgage rates?
Mortgage rates have a few things kind of priced into them, and among them is the sort of benchmark interest rate that they might use, which is basically like a treasury bond of a similar sort of duration. So when treasury yields go down, what you usually see are mortgage rates going along with them. And that's, again, because those mortgage rates are sort of priced off of what treasuries are doing. So those things tend to move in the same direction. When treasury yields are going down, meaning people are buying treasury bonds, usually mortgage rates are going with them.
So right now, what's standing in the way of lower mortgage rates?
Well, so we did see mortgage rates kind of take a big tumble during last week's kind of market mess. But then we saw them tick back up in daily measures of mortgage rates.
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