Mortgage Backed Securities for Dummies (Just Kidding) – MBS 101
Let me share with you the several factors that influence Mortgage Backed Securities which determines what rate you will get.
Timing the market for the best opportunity to lock a California mortgage rate is certainly a challenge, even for professionals. While there are several interest rate trend indicators online (I subscribe to several of them for your benefit), the difference between what’s advertised and actually attainable can be influenced at any given moment by a multitude of variables in the market, and with each individual loan approval scenario.
Lenders still set their rates each day based on market activities of Mortgage Bonds, also known as mortgage-backed securities (MBS). On volatile days, a lender can adjust pricing anywhere from one to five times, depending on what’s happening in the market.
Here are 5 key factors that you NEED to know that Influence Mortgage Backed Securities in 2023:
- Inflation: Inflation is still a crucial factor in the mortgage rate environment. When inflation rises or the expectation of future inflation increases, rates tend to go higher. Conversely, when inflation declines, rates decrease. Monitoring inflation rates is essential for understanding where mortgage rates might be headed.
- The Federal Reserve: The Federal Reserve’s actions continue to play a significant role in the mortgage market. In recent years, the Fed has implemented various policies to control interest rates. Their decisions can impact mortgage rates directly, so staying informed about the Fed’s policies and announcements is essential for borrowers.
- Unemployment: Unemployment rates continue to be a factor influencing mortgage rates. Decreasing unemployment suggests that mortgage rates may rise, as a strong job market can lead to higher inflation. Conversely, higher unemployment levels tend to result in lower inflation and lower mortgage rates.
- GDP: GDP remains a measure of the economic output of the country. High levels of GDP growth still signal the possibility of increasing mortgage rates. The Federal Reserve may adjust short-term rates to manage economic growth, and rapid GDP growth could lead to higher interest rates.
- Geopolitics: Geopolitical events, global conflicts, political developments, and natural disasters can still impact mortgage rates. Unforeseen events, such as geopolitical tensions or natural disasters, tend to create uncertainty in the financial markets. Investors often seek the safety of bonds, leading to lower mortgage rates during such periods.
Making sense of these factors: Economic data is reported daily, and certain data points have a greater tendency to affect the mortgage rate market. If you are involved in a real estate financing transaction in 2023, it’s helpful to be aware of these influences or to rely upon the advice of a trusted mortgage professional who is well-informed about the current market conditions, as the mortgage landscape evolves constantly!
Contact me at any time for more information on mortgages and MBS.