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Here’s What’s Driving Mortgage Rates Down

by Lark Turner

Here's What's Driving Mortgage Rates Down: Figure 1
Click to enlarge.

Mortgage rates, despite slight fluctuations, have stayed low for many months, an unexpected trend given the slowly but steadily improving economy. So what gives? The Urban Institute broke it down in a post on Thursday.

The think tank’s explanation looks at five major reasons why rates haven’t risen as predicted. The whole post is worth a look, but here’s a quick summary for the five reasons:

  • The Institute suggests that a slowly growing and unsteady overseas economy is making the U.S. an attractive option for parking lots of money, meaning Treasury debts are sinking. Mortgage rates stay low as a result.
  • Lots of oil market movement. This, the think tank argues, keeps uncertainty high. That contributes to the same phenomenon: people parking money in the U.S.
  • A steadily improving U.S. economy means “the uncertainty premium that is normally reflected in higher interest rates for longer term debt is small, and reduced from a year ago.” Eventually, though, this will push rates up, which is why so many have predicted rates will start rising soon.
  • Low treasury rates. These rates basically set mortgage rates. When they’re low, so are mortgage rates. And right now, they’re really low.
  • A low number of mortgages. Getting a mortgage is still relatively difficult thanks to high credit standards, the think tank points out. Relatively low demand keeps interest rates enticing for buyers.

See other articles related to: urban institute, mortgage rates

This article originally published at http://dc.urbanturf.com/articles/blog/urban_institute_heres_whats_driving_mortgage_rates/9533

2 Comments

  1. Doug Francis said at 4:10 pm on Monday February 16, 2015:
    For years people have been hearing about "historically low" rates, and the chart shows this long term trend well. Going from 6% to just under 4% was a huge move ~ so, a move going below 3% will take, in my opinion, an exceptionally long time.
  1. bob said at 11:36 pm on Monday February 16, 2015:
    Well, sure, at some point miniscule returns just aren't worth the risk. I can't imagine rates will fall below 3% for a 30 year loan.

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