Mortgage rates move with investors buying or selling fixed rate financial instruments (e.g. bonds or long-term mortgages). Interest rates and bond prices move inversely, as more selling of MBS causes prices to drop and pushes mortgage rates up, and vice versa.

Historically, if equity markets are rising in price, fixed rate investments are dropping in price because investors sell their fixed rate investments to purchase the equities. The opposite is also true, if investors are selling equities, they will generally take the sale proceeds and purchase fixed rate investments. News that creates more value for equities will cause buying interest in equities and the prices of equities to increase. Before equities become overpriced, this reduces demand for bonds and MBS at their current rate levels, reducing rates to a point where these instruments become attractive investments again.

At some point the rates of return on the long-term fixed investments become high enough, therefore the prices low enough, that investors will start to return to these investments, slowing rate increases and potentially reversing the trend. And equities usually respond well to positive news and negatively to bad news, meaning rates go up with good news (e.g. the economy is humming) and go down with bad news (e.g. China just announced retaliatory tariffs). All this should come as no surprise that LOs are rooting for “bad” news so that rates will decrease and they can lock in their borrowers at lower rates.

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~~~~  from the great mortgage industry blogger Rob Chrisman at www.robchrisman.com.

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