Why Are Rates Going Down?

Why Are Rates Going Down?

In the past couple weeks, there have been some international events driving interest rates down. Well what really drives mortgage rates? The old story from George Bailey in “It’s a Wonderful Life” is still true, for those that need a reminder there is a run on the Bank, and George explains that the money is in lent out to build the neighborhood.

Unfortunately, what happened in It’s A Wonderful Life happened many times in American history, and rarely had a positive outcome. The problem was one of liquidity. Liquidity, loosely is the ability to exchange something for cold hard cash quickly and cheaply.  George Bailey couldn’t just trade the loans for cold hard cash during that era.

Today, that isn’t quite the case. If that happened today, George could underwrite the mortgages to Fannie Mae’s standards and have something that he could trade to another bank for cash. The market for Fannie Mae loans is one of the most liquid in the world and allows American’s to borrow at rates as low as they are today! This is also because the liquidity allows other mortgage investors to painlessly invest in loans to American consumers. If you have a pension, or a life insurance policy, almost assuredly some of those funds are invested in mortgages. Anyone who has cash and wants to invest it in American mortgages can do so, and they even include international financial institutions.

That brings us to the main reason mortgage rates are so low today. The American economy and financial markets are much more stable compared to those internationally. In Japan, and Europe, interest rates are even lower than they are here, so money has been flowing from their banks and financial institutions into American’s mortgages.

Related Posts

Why You Shouldn’t Delay Refinancing Your Mortgage
Why You Shouldn’t Delay Refinancing Your Mortgage

In the ever-changing landscape of the real estate market, timing is everything. If you’re a homeowner who secured a mortgage when interest rates were higher, now is the time to act. Refinancing your mortgage can be a game-changer, unlocking significant savings and providing you with financial flexibility. In this blog, we’ll explore the compelling reasons […]

January 11, 2024
Full Post
Breaking News! New Conforming Loan Limits
Breaking News! New Conforming Loan Limits

It’s no secret home prices have been increasing across the country, and today brings good news to help. Homebuyers seeking conforming loans may now borrow up to $766,550 in most counties and up to $1,149,825 in higher-cost areas! The size of conforming loans, those backed by Fannie Mae and Freddie Mac, is assessed annually. Based […]

November 28, 2023
Full Post
Mortgage Market Insights: Inflation, GDP, and Rate Expectations
Mortgage Market Insights: Inflation, GDP, and Rate Expectations

After a dynamic week in the market, we thought it would be helpful to share some key highlights. Let’s dive into the recent events and their impact on inflation, GDP growth, and interest rate expectations. GDP Surprise Yesterday, there was a significant selloff following the release of the Q1 GDP report. Gross Domestic Product (GDP) […]

June 30, 2023
Full Post

Connect With Us