AZ Mortgage Rates – Comeback Story?

Phoenix Area Mortgage Rates May Drop

Mortgage Rates May Drop

Arizona mortgage rates have slowly and steadily increased over the past 4 weeks.   In fact, 30 year fixed interest rates have gone up by approximately .5%.   Is a return to lower levels in store?  Let’s take a look at what is in store for mortgage rates.

Now, let’s keep this in perspective – a 30 year fixed mortgage interest rate under 4.0% is still an outstanding and historically low mortgage rate.  With that said, potential buyer’s and homeowner’s looking to refinance have grown very fond of 30 year fixed rates in the 3.25% – 3.5% range and as an Arizona mortgage lender I can’t blame them.

The sticker shock of a 30 year fixed mortgage rate closer to 4.0% will soon fade for one reason or another:

1. The market (buyer’s/homeowner’s) will adjust to this new slightly higher rate level
2. Mortgage rates will rebound and return to lower levels

If #2 is the reason people find rate solitude, it also will delay the inevitable which is an adjustment to more “normal” mortgage rates.  Regardless, the reality is that #2 is a very likely scenario despite the daily interest rate increases we have seen linger on this winter.  Arizona Mortgage rates move in the direct opposite direction compared to mortgage bonds and mortgage bonds tend to go in the opposite direction of stocks.  When stock prices/values go down, mortgage bond prices/values tend to go up and when mortgage bond prices/values go up mortgage interest rates go down.  Over the next few weeks there is a good chance that stock prices will come down leading to lower mortgage rates.  Let’s dig in a little deeper.

Why Does the Stock Market Go Up or Down?

Stocks tend to go up when people have faith in the overall performance of our economy (based on the fact that buying a stock is essentially an investor buying a piece of a company).  If companies are doing well, people want to own a piece of them.  On the flip side, if the economy is not doing well and companies are not making money/not increasing profits  investors shy away from investing in stocks.  Why set sail on a sinking ship right?   Therefore, demand along with stock price both tend to decrease in a slowing or lackluster economy.

IMPORTANT NOTE: Stock prices/values go down when investors feel that it is time to sell (for one reason or another) and “take” their profits.

What do investors do when stocks are not a good place to put their money?  They look for the a “safe haven” alternative where they can still earn interest on their money (while less than what is possible with stocks) without risking losing their investment capital.  This is EXACTLY what bonds provide – a safe guaranteed rate of return.

With this dynamic in mind, let’s consider the current state of our stock market and our current mortgage interest rate levels.  In short, the stock market is over inflated from a price standpoint.  Stock prices are nearing record highs despite our economy’s mediocre performance.  In fact, if you look at a graph detailing the movement of the Dow Jones stock index you will see that it is just about to hit a level  that it has not yet exceeded.  3 times in the past year we have seen this major stock market index hit/approach this level briefly and then turn sharply to head south.   It is a pattern that has clearly repeated itself over the past 12 months.  If/when stock prices decrease again after hitting this peak, bond prices will benefit based on what we talked about – “safe haven” investing.  Investors will begin pulling money from the stock market and shoving it into the bond market as quickly as they can to protect their capital.

Does The Stock Market Impact Mortgage Rates?

This is GREAT news for mortgage rates. Why?  Remember – when bond’s go up mortgage rates go down!  Investors pushing their money into the bond market to escape a falling stock market would cause bond prices to rise and mortgage rates to go back down.  With all this in mind there is a good chance that our already VERY low Phoenix area mortgage rates may return to the low/mid 3.0% range over the next several weeks.  All eyes will be on the economy and all the economic reports due out over the next several weeks.  Reports such as the unemployment rate communicate the direction of our economy.  If strong economic data is revealed, we may see the stock market hold and possibly break through to new highs which would keep rates from returning to lower levels.  However, if the economic data that comes out over the next few months is luke warm at best there is a great chance that we will see mortgage rates decrease from current levels and possibly return to previous historical lows.

Buckle up!  This will be a fun ride.  If you have any questions about the short-term direction of our mortgage rate market please call or email me.

By Jeremy House

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