Political unrest good for homebuyersby Keith Gumbinger
Mortgage rates have eased back a little bit over the last couple of weeks, and homebuyers and potential refinancers have the restive political climate in the Middle East to thank.
At times of financial or political unrest, investors prefer to get their money out of harm’s way, a happenstance called a “flight to safety.” In this way, investors may transfer money out of riskier investments (or investments in riskier locales) and into places where at least some return is likely (even if it is meager).
This also sees money roll into commodities, such as precious metals and oil, driving up their costs (and potentially creating a bit of inflation, as well). However, a fair bit of money usually finds its way into U.S. denominated assets, most notably Treasury obligations. That surge of cash — an increase in demand — drives up the price of a given bond, which in turn drives down its yield (see “What Moves Mortgage Rates?“).
That decline in benchmark yields serves to influence the prices and yields for other, similar investments, such as mortgage rates. While not always a lockstep affair, a decline in Treasury yields (such as the 20-plus basis point decline over the last 10 days) is accompanied by a decline in the benchmark 30-year fixed rate mortgage (which has declined about half as much over the same period).
Potential borrowers should know that just as money can “fly in” in a flight-to-safety, it is just as likely to “fly out” when the dust from whatever event caused it has settled. This means that you shouldn’t count on continual declines, waiting for even lower rates to happen, but rather should take advantage of the dip in rates by locking in your deal as quickly as possible.
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