What Drives Mortgage Rates - CLS Financial
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What Drives Mortgage Rates

Understanding what makes mortgage interest rates increase or decrease.

Many factors influence the direction and speed at which interest rates change.

Stock Market

Mortgage Rates Increase - Stock market on the rise

Mortgage Rates Decrease - Stocks in decline

The stock markets and interest rates have an opposite reaction in relationship to each other (most of the time). When buyers are putting money in a Stock market that’s doing well, money moves out of the Bond market, causing prices to drop, which pushes interest rates higher.

Federal Reserve

Mortgage Rates Increase

  • Pulling money out of the monetary system usually indicates inflation is either present or anticipated by the Fed

Mortgage Rates Decrease

  • Adding cash in to the monetary system creates a looser credit environment in an attempt to stimulate the economy through borrowing and expansion

The Federal Open Market Committee (The Fed) meets eight times a year to determine the near-term direction of monetary policy. “Monetary policy” refers to the actions taken, for example, by the Federal Reserve, to influence availability and cost of money, as well as credit to help promote national economic goals. By controlling the flow of cash through the economy, the Fed attempts to keep inflation under control.


Mortgage Rates Increase

  • Non-term payrolls are higher than expected
  • Unemployment rate goes down
  • Better than expected economic data in general

Mortgage Rates Decrease

  • Jobs stats show stagnant or in decline
  • Manufacturing is stagnant or slowing
  • Housing is weaker than expected

Released on the first Friday of each month by the Bureau of Labor Statistics, the Employment Report is considered the most important of all economic indicators because it provides a first look at the current economic situation. Rates reflect the relative strength or weakness of this data on a day-by-day basis.

Inflationary Pressure

Mortgage Rates Increase

  • Higher Consumer Price Index
  • Higher wholesale prices
  • Hourly earnings higher

Mortgage Rates Decrease

  • Lower Consumer Price Index
  • Lower wholesale prices
  • Hourly earnings lower

Low interest rates depend on low inflation, which causes both wages and prices to rise and the cost of borrowing to get more expensive. Good news for the economy is often bad news for interest rates.

World Politics

Mortgage Rates Increase

  • China’s GDP improves
  • Middle East tensions ease

Mortgage Rates Decrease

  • European economy sinks
  • When conflicts or acts of terror occur

Buyers often turn to the US markets as a gauge for investing whenever things go wrong in the world. The relative stability of our markets provides a “safe haven” in times of global crisis.

Global News

Mortgage Rates Increase

  • In a serene landscape around the globe with little catastrophic weather or events

Mortgage Rates Decrease

  • Hurricanes
  • Typhoons
  • Tsunamis
  • Earthquakes

Again, what’s good for the planet is bad for Bonds. But when buyers are attracted to our markets for safety, the flood of investment creates a favorable environment for interest rates.