After the drop in the Dow this week mortgage interest rates went up briefly to just above 5%. Today the interest rate on a 30-year fixed-rate mortgage, on average, was 4.88%. It appears interest rates may be on the rise.
There is not a tangible relationship between mortgage rates and the stock market whereby one can be said to directly drive the other. Although they both respond to the same market conditions, their response is difficult to predict. That said, there are some notable patterns by which either mortgage rates or the stock market suggest the behavior of the other. These patterns are based on flows of investment money, as well as the larger economic impact of either a healthy stock market or low mortgage rates.
Low-interest rates help to spur the housing market. Housing is a major factor in boosting a healthy economy. This in turn supports a rising stock market. So while in the short term, a falling stock market can drive down interest rates from a macroeconomic perspective, those low rates should eventually undergird a stock market rise. This theory was the logic behind the Federal Reserve’s QE activity over the last few years. Some economists fear that as the Fed winds down this program, rising mortgage rates will derail the stock market rally. Based on what’s taken place recently in the stock market it’s anyone’s guess what will happen next.
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