Supply and Demand Affects Mortgage Rates

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Mortgage interest rates continue to fluctuate with the shifting economy. We recently saw rates fall due to economic pressure from unemployment and slow economic recovery. Now, however, the slight climb has to do with the mortgage-backed bonds that determine the interest rates. Buyers who are trying to plan their next move should be watching this important economic indicator.

Bob Phillips explains why mortgage rates are rising:

“After starting the week with a run lower toward 5 percent, mortgage rates have reversed course. It started mid-day Tuesday and the culprit is basic economics.  Here’s why. Mortgage rates are based on the price of mortgage-backed bonds and — like most things — mortgage-backed bonds prices are based on supply and demand. When bond supplies grow faster than the corresponding demand for them, bond prices tend to fall and when bond prices are down, bond yields are up. Meanwhile, this week, the U.S. Treasury is making its largest weekly auction in history. $115 billion in new debt, to be exact. This means that before the week is through, $115 billion in new bond supply has been introduced into the market and — so far — demand hasn’t kept pace with the new supply.”

Interest rates have been the central topic for many blogs and news articles. While low prices and government incentives have done their part to spur home buyers, the most time sensitive aspect of the current unprecedented affordability is the mortgage interest rate. REALTORS®, as well as news outlets, have been doing their part to inform the public of this rare opportunity.

Click through to read Bob Phillips full post.

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