Refi rates holding steady despite stock market surge

The stock market has surged from its low point in March, moving up almost 40% during the last six months. The mortgage industry, has not seen a significant adjustment with interest rates during this period. Historically, mortgage rates tend to move in conjunction with the stock market, as the stock market moves higher, mortgage rates tend to move up.

Mortgage rates for both refinance and purchase home loans are not set by banks or lenders, rather they are a reflection of the price that the secondary marketplace charges lenders to borrow money and then repackage this money in the form of mortgage loans to consumers. The secondary marketplace, often referred to as the bond market is similar to a commodity market as the pricing changes on a daily basis. Mortgage bonds, tend to move up and down based on investors perception of risk in the overall economy. Investors who believe there is significant amounts of risk in the market tend to purchase bonds, driving down the yield, resulting in lower mortgage rates for consumers. As money moves in and out of the bond market, interest rates tend to move higher and lower.

Mortgage rates over the past sixty days have been relatively unchanged, despite investors driving up the stock market. The flow of capital into the equity markets has yet to show a significant decrease of investors in the bond market, keeping yields lower and mortgage refinance rates low as well. This year interest rates are being influenced by the Federal Reserve which committed to purchase mortgage bonds in December and March, helping to drop interest rates to historic lows and bring on a refinance bonanza for banks and lenders. The historically low mortgage rates have also influenced the positive developments out of the housing market over the last three months. The housing market improvements are one of the key catalysts to helping drive the stock market rally from March.

Consumers who are in the market for a refinance loan or considering purchasing a new home and need to apply for a new mortgage can follow trends with mortgage rates by following the direction of the ten year Treasury bond. The ten year bond is a leading indicator of the future direction long term rates are moving, as investors who purchase Treasury bonds also tend to purchase mortgage bonds. These bond yields as they move higher, will be a good indication if mortgage rates are moving higher or lower. The ten year bond, bottomed out at 2.8% in March of this year and has moved as high as 4%, and currently is in the 3.5% range, leaving interest rates for refinance and purchase thirty year loan terms in the low five percent range.