What's Happening with Mortgage rates?

Mortgage rates have been on the rise. I’m now looking at about 6.25% - 6.50% (note rate) for a highly qualified buyer’s, but why?
The question is simple enough: What's going on with mortgage rates?
What makes them rise, or fall? Is it the Fed? The economy? Inflation? The banks? The President? Fannie Mae or Freddie Mac? Is it a secret ?
The answer is that rates are moved by a number of related factors, and believe it or not, you -- Joe or Jane Consumer -- are one of those factors.
Mortgage money can come from many sources, including deposits at banks and brokerages, but most comes from investors through what is collectively known the "capital markets." This is where investors interested in purchasing certain kinds of debt instruments -- bonds, in this case -- come to buy these items.
In order to attract investors, sellers of bonds must compete with one another to get their money. They do this by offering a variety of “instruments" (also called "product") with differing structures of risk and return over given periods of time. These offerings compete with other investments which are reasonably similar in performance, such as US Treasuries, corporate bonds, foreign bonds, etc.
Who are these investors, and why are they so fickle? Mostly, they're people like us, and we want two opposing things: low payments on our debt, especially our mortgage, and high returns on our investments. You (or your investment advisors or fund managers) will only buy so many low- yielding bond investments (mortgage or otherwise), because we would take our money elsewhere if the returns are too low.
Investor demand for a given kind of investment plays a considerable role in moving market yields, because investors have literally hundreds of places to put their money. It's a crowded marketplace, with many sellers of various products competing for those investor dollars. Investor demand for specific product rises and falls with changes in investment strategies; if demand falls enough, a change needs to be made to attract investors again. How to attract them again? Usually it’s by raising the interest rates, thereby raising the return on investment.
Of course, it's not as easy or simple as that. Mortgage market makers serve not one client, but two: investors, who want the highest possible return on their investments, and the homeowner or homebuyer, who wants the lowest possible interest rate. Simultaneously, rates need to be high enough to attract investors but low enough to attract borrowers. It's quite a complex dance; investors, though, make the music.
As interest rates (yields) decline, investment customers can become more or less interested, depending upon the direction of economic growth, inflation, appetite for the given product, and several other factors. Typically, though, the lower those rates get, the fewer investors are interested in putting them on their books … so again we are facing higher rates to compete with higher investment return.
Bottom line: I think we will see another Fed rate cut. If and when this happens, my personal opinion is that the window of opportunity to cash in on a great rate will be narrow. The Wall Street investor’s will want risk reduction and more return on their investment pool of funds. The prospective currently is that the market has not corrected itself …at least not yet.

Let me know if I can help you.

Gail Roberts / Columbia Mortgage
360- 816-9207 office
360-903-8423 cell