Everybody Loves a Good Sequel

In last week’s edition of this award-winning publication (well, it won the “award” of being my grandmother’s favorite mortgage newsletter of all time), we tried to bring a little perspective to the mortgage world – the underlying message to it all was rather simple: keep calm, there’s no reason to panic. If last week’s edition of our newsletter were a movie, it would have been considered a blockbuster hit, so we’re doing what any major Hollywood studio would do: come out with a sequel as soon as possible to capitalize on its popularity.

You couldn’t turn on the television or fire up the Internet last week without being inundated with headlines like “China Shares Gyrate Wildly” (which sounds like an ‘80s New Wave band) and “Dow, Nasdaq Close Down Triple Digits in Correction on China Worries”. If you read the article, the tone was very dire as if the Apocalypse were expected to come on Thursday at 4:19 p.m. local time; if you watched a report tied to one of these stories, you might have wondered how the talking heads (a really great ‘80s New Wave band, by the way) were keeping it together – the severity of the news they were reporting would surely make their heads explode (which, depending on the particular news commentator, might have been fun to watch). Here’s what they weren’t telling you (because, frankly, shock and awe are far better for ratings and readership than just plain good news):

While the two are not directly and inseparably linked, the performance of stocks and mortgage rates have a casual relationship (nothing too serious – they want to date other people) that tells us something. Usually, when stocks perform poorly, investors get out of stocks and push their money into bonds. When bonds do well, this means mortgage interest rates tend to stay low or even improve. Similarly, when something happens in a market on the other side of the globe that causes tension, investors flock to the safe bet: bonds.

This, of course, is a VERY simplistic explanation of how the stock market affects mortgage rates, but the perspective enables us to take a step back, take a breath, and realize that mortgage rates are most likely NOT going to skyrocket in the near future. With that said, here’s another piece of good news or positive perspective to take away from all of this: Low interest rates encourage people to buy and sell homes, thus giving the housing market a healthy boost. Since housing is a major factor in improving the health of our economy, this tends to support an improving stock market. So, as a struggling stock market, at present, helps drive down interest rates, those low rates should help the stock market to bounce back. In plain English: it’s a good time to buy and sell; and once your property is in escrow, sit down, relax, and turn on the television in the hopes the guy on CNN will have a psychotic breakdown on the air.