How are the Big Moves in the Financial Markets Affecting Rates?

Filed under: Market Comentary

My phone has been blowing up with people asking questions about the current news headlines: The Fed dropping rates by .5 of a point, and the DOW average is moving fast. What is going on? Here’s what you need to know:

Quick Update: The Fed Cut Rates

First off, yesterday The Fed dropped rates by a half a point. As I always say, you need to remember that the Fed dropping rates doesn’t have a direct correlation on mortgage rates. But it does have an effect on the overall market.

Also, it’s important to note that yesterday was an unscheduled meeting. This unscheduled meeting is the result of the Fed seeing the craziness in the markets, which appears to be primarily focused on the coronavirus news.

At the same time, we saw some improvement in the markets today, likely because of the news of Biden’s good showing in the primary elections yesterday.

How are Bonds Affected?

What does this all mean for bonds, which set mortgage rates? A lot is happening with bonds right now, which is why there are so many advertisements to refinance or buy a home with historically low rates. Today, technically speaking, bonds are at all-time lows. If you are a buyer looking for a home, it means that rates have come down significantly – which is like putting your house on sale.

Stronger Purchasing Power for Home Buyers

If you are thinking about jumping into the real estate market, rates coming down could be a great catalyst. Remember that a 1% change in interest rates equals a 10% improvement in purchasing power. We’ve seen a 1% change since the beginning of the year! For the same mortgage payment, you can buy a house that is 10% more today than you could 2 months ago.

Also, refinancing is a great option to consider right now. If you want a review on your mortgage, then reach out to me and I’ll run the numbers to see if it makes sense for you (based on the break-even point for your refinance).

The summary: yes, the markets are freaking out. Let’s not freak out ourselves! From a mortgage and real estate perspective, it’s an interesting opportunity with what is going on with the low rates that are available.

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