What Moves Mortgage Rates

When I ask this question (What moves mortgage rates?) to people 99% of the time it's one of three answers:

  • The Fed
  • The 10y treasury
  • I don't know

And it's not surprising to hear those answers. Most news organizations don't report how mortgage rates originate or what the primary factor behind mortgage rates moving up or down. They just usually assume it's one thing (mostly the Fed) and base their report on that wrong assumption.

The simple answer:

The good news is the answer to what moves mortgage rates is fairly simple and being able to have a decent understanding of it will put you significantly ahead of 99% of consumers. So what is it?

The Mortgage Backed Securities market.

Never heard of it? You're not alone. In fact I would not be surprised if more than 90% of Mortgage Loan Originators didn't know about the Mortgage Backed Securities (MBS) market was. The MBS market is a bond market where investors trade groups of mortgages. When the value goes up; rates move down. When the value of those mortgages moves down; mortgage rates go up.

That's it.

Are there other factors that influence the movement of consumer mortgage rates on a daily, weekly or monthly basis? Sure:

  • Application volume
  • Lender delinquency rates
  • Cost to originate the mortgage

These are just some of the additional factors that go into formulating consumer mortgage rates.

What about the Fed and the 10 year Treasury:

The Fed and the 10 year Treasury have an influence over the Mortgage Backed Securities market but they do not directly impact consumer mortgage rates. And the Fed does not control purchase or refinance underwriting guidelines. There are times when the Fed raises rates and mortgage rates move lower (see December 2018 as proof). 

So next time someone brings up mortgage rates in a casual group conversation you can now step in and provide a little education as to what really moves mortgage rates.