It's truly amazing how volatile the mortgage market can be. I always tell my clients that rates are like the stock market. They go up and down and can do so several times within a day. It's like trying to hit a moving target. There are many factors that change mortgage rates but I want to stick to a timely topic-The stock market in relation to the EU crisis.
I will start by saying I am not an economist and don't claim to be one. Nor do I play one on TV. Besides, why would the lay person want an intricate explanation anyway? Here it goes:
As a general rule, when the stock market does well, mortgage rates tend to go up and when the market does poorly, mortgage rates tend to drop.
Why is that? The bond market control mortgage rates. When people feel good about investing in the stock market, there is a tendency to move away from the more conservative bond market. More demand for stocks lowers the demand for bonds. When the demand for bonds goes down, their prices go down and their yield goes up. Higher bond yields means higher mortgage rates. The EU crisis is a perfect example of this. Yesterday was a good day for mortgage rates because there were rumors that the talks to put an aid package together was falling apart. If they did, people knew that the market would tank and thus be afraid to invest in the market and thats exactly what happened. There was a "flight to safety" in bonds and mortgage rates dipped.
Once the aid package was announced, a sense of balance and relief was felt by the markets and people felt more secure about investing in the market. Therefore, the demand for bonds dissipated and rates when up today.
Sentiment drives market changes. How people feel about what may happen can and will move markets and of course that includes the mortgage market.