If you’re really in the market to buy a house you may have been looking at mortgage interest rates lately.  The interest rates, which had been going up on the uncertainty surrounding the US Debt ceiling debate, all of a sudden started to take a dip.  According to the Wells Fargo Mortgage website for a home priced at $350,000 in Prince George’s County, MD, a 30-year fixed rate mortgage (non-FHA) has an interest rate of 4.375%.  The same mortgage for 15 years is 3.5%

Fixed rate mortgages.

That’s pretty darn low.

What Does This Have To Do With The Stock Market

Many years ago, there was a popular myth that mortgage rates were somehow tied to the Federal Funds Rate.  That’s they rate the Federal Reserve sets for banks that give each other very short term loans (i.e., overnight).  That rate has no been close to zero for a couple of years. Yet, mortgage interest rates continue to bounce up and down.

In reality, mortgage interest rates are tied more closely to the bond market. Specifically, treasury bonds.  Those are the things people buy when they don’t want to lose a cent and maybe get a little interest on the side.  They have the “full faith and credit of the United States” behind their repayment.  That “full faith…” was called into question when Congress was haggling over the debt ceiling.

Once that got taken care of investors started heading back to the Treasury bond market.  When the equity stock market hit the skids (The Dow Jones Industrial Average dropping over 500 points in one day), the cost of bonds went way up and the interest rate went way down.

Mortgage rates followed right behind the bond rates.  After all both mortgages and Treasury bonds are long term (30-year) investments.

Mortgage Rates Will Inevitably Rise, Again

Sooner or later (probably later) the world financial markets will start to stabilize.  The debt crisis both in Europe and the US will find some resolution and large institutions will begin to buy stocks, again.  When that happens, the mortgage interest rates will begin to rise as the Treasury bond interest rates rise.

The sad part of all of this is that there doesn’t seem to be any stabilization in the foreseeable future.  So, my guess is that mortgage interest rates will continue to bounce up and down.  A 15-year fixed rate mortgage may be 3.5% today.  It may be closer to 4% (still very low) in a week.

Assuming you can run the gauntlet known as the mortgage underwriting process, this may be a good time to make the decision you’ve been wanting to make.  It may be time to buy that house.

Interested in finding the house you want to live in?  Click Here to start your search today!