Stock Market Recovery Affects Mortgage Rates

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The Grubb Co Realtors look into August's stock market trend change and get answers from three local mortgage brokers.

As of late August, the stock market is finally recovering from a wild ride. Because of these ups and downs, The Grubb Co Realtors expect this to affect the current mortgage rates, and encourage current property buyers to look into these trends and how to work with them, rather than against them.

With all of these recent changes in the market and rates, The Grubb Co Realtors reveal some answers and opinions based off of three local mortgage brokers.

The questions and answers go as follows:

1. Considering our current economic conditions and market volatility, will mortgage rates rise in September?

Roger Smith (LaSalle Financial): “I wish I could give you a more definitive answer! Before the recent stock market dip, I would have said there was a unanimous feeling that the Fed would raise the overnight lending rate. If we continue to see as much volatility as we’ve had of late, the Fed will probably hold off. Either way, the mortgage markets have already anticipated a Fed increase ‘baked in’ to current rates.”

John Holmgren (Holmgren and Assoc.): “Conventional wisdom was that the Fed would raise rates by 0.4 percent in September. It’s always a question as to what effect a hike in the federal funds rate will have on mortgage rates; evidence that the Fed is being responsible sometimes has a positive effect on mortgage rates. Given the fragility of the stock market, the chance of a rate increase is probably 50/50.”

Tom Nitsan (MPR Financial): “Mortgage rates have already priced in the expectation that the Fed will raise rates. Short-term rates will probably rise, affecting equity lines, car loans, and student loans.”

2. If rates go up 25 basis points, would that affect mortgage rates tremendously?

RS: “Even if the feds do raise rates, I don’t think it will affect mortgage rates that dramatically.”

JH: “Don’t expect significant changes, regardless of what the Fed does. The movement of interest rates depends more on the global economy. Rates were originally dropped to stimulate the economy, which is why they’re still near historic lows. Once it’s clear to the Fed that there’s a sustained recovery underway, we’ll no doubt see some upward movement.”

TN: “Mortgage rates are not really tied to the Federal Reserve, but more to the bond markets’ expectations and other factors. International trading has made the world smaller… we now get to share global volatility.”

3. Would an increase in interest rates convert buyers to adjustable rate mortgages (ARM)?

RS: “I think it’s going to take a dramatic increase to make adjustables an important product in the marketplace. Only 1 in 10 mortgages is currently an ARM. Why would you take the risk when fixed rates are still at or near their all-time low?”

JH: “Highly unlikely… most people want the stability of a fixed rate. Even shorter ownership situations who would be good candidates are still shying away from them, taking a more conservative approach.”

TN: “I don’t expect a large increase in rates. I could be wrong, but I think rates will remain low for some time. People are stretching to buy homes, which makes them more cautious and conservative, thinking they better stay in that house for a while.”

4. Has the recent stock market volatility and devaluation harmed buyers’ buying power (i.e., down payments, etc.)?

RS: “Clients who have their down payments sitting in investment accounts probably saw a 10-15 percent dip and then recovery in late August. I advise clients to get down payments into more conservative accounts, just in case.”

JH: “If the stock market had stayed down, it would have been a real problem. We may not be out of the woods, but people might want to put their money in money market accounts to play it safe. But, we’re not recommending that at this time.”

TN: “In general, what puts the brakes on a strong housing market is a lengthy drop in the stock market or a natural disaster. I hope the stock market volatility we just saw was a glitch, and think it would take a longer downturn to have a real impact.”

Please call or email with comments or questions about this article, or for help in finding the best mortgage broker for specific needs.

Special thanks to our three interviewees for their time and input:

  •     Roger Smith, LaSalle Financial

rsmith(at)lasallefinancial(dot)com | 510-339-4300 x106

  •     John Holmgren, Holmgren and Assoc.

john(at)mortgageholmgren(dot)com | 510-433-8809

  •     Tom Nitsan, MPR Financial

tom(at)mprfinancial(dot)com | 510-527-6146

For more information about The Grubb Company, please visit http://www.grubbco.com.

About the company:
The Grubb Co Realtors is a full-service real estate firm, offering their clients a smooth and professional real estate experience. With more than 44 years in the business, The Grubb Company knows that a high level of service ensures the satisfaction of their clients. They have a foundation of discipline, accountability and teamwork that sets them apart from other real estate firms in the area. The Grubb Company is committed to providing their clients with the best agents, the best service and the best houses around. To learn more, visit their website at http://www.grubbco.com/.

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Susan Kline