Mortgage Rates Trends – March 24th – Prime Rate Pulling Mortgage Rates Lower?
Posted on | March 23, 2009 | 1 Comment
When looking at trends of mortgage rates and all financial markets, I prefer to look at the long term trend before zooming into shorter term movements. If we look at the last month alone, it is very difficult to find a distinctive trend. Mortgage rates could change directions over 10 times in 30 days and it does not look like there is a trend at all. When you zoom out and look at a much longer term chart, such as a 10 or 20 year chart, we then see what the overall trend for mortgage rates is. Currently, we are in a short term and long term downtrend.
Over the last 40 years, the overall trend of mortgage rates often follows the trend of the WSJ Prime Rate. The WSJ Prime Rate is a survey of the 30 largest banks and portrays the average rate at which banks will lend money to their most dependable borrowers. The prime rate changes when 23 or the 30 surveyed banks see a change in their lending rate. If you look at a long term chart of the prime rate compared to mortgage rates, you will notice that when the direction of the prime rate changes, it is a very short time after that when mortgage rates follow in the same direction.
In October of 2007, we saw the prime rate fall from 8.25% to 7.75%. Since then the prime rate has made a steady downward fall to the current prime rate of 3.25%. In that same period, mortgage rates have fallen from 6.38% to 4.98%. It makes sense that the interest in which banks lend money for credit cards and auto loans would reflect mortgage rates. While it is not a perfect correlation, it is very close!
The question we must now ask is when is the prime rate going to reverse its course and head higher? When it does, we are likely to see the overall trends in mortgage rates bounce as well. Currently, the Federal Reserve Bank is doing everything in their power to push mortgage rates lower so it is highly unlikely we will see a directional change in the current prime rate anytime soon. Make sure to stay tuned into Subprime Blogger as we will give you the heads up when things do change!
Each Tuesday I intend to write an article on Mortgage Rates Trends which will help to explain where we have been and where we are going. Each week I will give new information which will help you decide if the mortgage rates trend will remain down or will reverse and head higher. Make sure to bookmark the link below and check out the mortgage rates trends each Tuesday.
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March 23rd, 2009 @ 10:42 pm
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