Will today's stock market influence tomorrow's mortgage rates?

Mortgage rates are influenced by a variety of factors, rather than moving in lockstep with any one economic indicator.

Equity markets compete for the same investor dollars as to mortgages and bonds, and a rising stock market may see investors selling some bond holdings in order to capitalize on stock gains. To the extent that money is shifted–bonds sold to free up cash–this can cause mortgage rates to increase somewhat.

That said, the stock market does not have any direct influence on mortgage rates, but watching stock market movements can sometimes offer clues about other issues that might push mortgage interest rates up or down.

Mortgage rates and the stock market

The stock market rises and falls for a wide variety of reasons, including global, economic and political issues, but as a broad rule of thumb, a rising stock market indicates optimism among investors about the economy. When negative financial news is released, such as an uptick in unemployment or renewed concerns about the debt crisis in the U.S. or abroad, stock prices often drop.

When investors sell stocks, they often turn to bonds. While not the only influencing factor, the bond market offers a stronger indication of the likelihood of rising or falling mortgage rates. When demand for bonds is high, bond yields drop.

Mortgage rates and the economy

While stock prices change because of a broad range of influences, mortgage rates are impacted mostly by investors in mortgage-backed securities. Although some mortgage funds come directly from the books of banks and credit unions, most mortgage money is supplied though the sale of loans to those who create mortgage bonds (like Fannie Mae and Freddie Mac). 

In turn, demand among investors to purchase these bonds will influence mortgage rates. If demand is low for mortgage bonds, mortgage rates may be raised to entice more investors. In periods of high demand or limited supply, mortgage rates stay low.

Rather than following the stock market, borrowers who want to understand where mortgage rates are going should watch the rates on Treasury bonds and keep up with today's mortgage rates.

Michele Lerner contributed to this answer.

Ask the expert
Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
Submitting your question...

Question received! Check back later to see if your
question gets published.

Q: Can I get forbearance for my mortgage?
MAR 18, 2020

The answer is "possibly." It depends on the situation.

Read More
Q: Is mortgage insurance tax deductible?
JAN 08, 2020

Tax deductibility for PMI premiums or MI premiums for FHA loans has been an on-again, off-again kind of thing. For 2019 and 2020, it's back on.

Read More
Q: How many times can I use my VA home loan?
OCT 31, 2019

There are three ways you can restore your VA eligibility so that you can take advantage of it more than once.

Read More
Add to Homescreen?
Install this web app on your phone :tap and then Add to homescreen