Well, once again it is the AI trade leading to lower mortgage rates.
It seems to be the only thing working when it comes to getting mortgage rate relief lately.
Of course, it comes at the expense of prospective home buyer’s stock portfolios.
And if you check your stocks daily and see that you’re all of a sudden a lot less wealthy, that might give you pause to buy a home.
Especially when the difference in monthly payment might actually be pretty negligible.
Tech Stocks Get Hammered, Pushing Bond Yields Lower
If you’re rooting for lower mortgage rates, I have some good news for you.
Bond yields have plummeted thanks to a tech stock selloff, with investors seeking safety in 10-year bonds versus once high-flying AI-stocks.
The S&P 500 was down about 100 points, while the Nasdaq fell nearly 600 points.
This is more of the same trend we saw last week where investors continue to grow skittish about AI stocks and move back into the safe haven of bonds.
In simple terms, when there is more demand for bonds, their yields (interest rates) drop. So it’s a positive for mortgage rates.
At last glance, the 10-year bond yield was down about 15 basis points, just barely back below 5% again.
That’s a big one-day move and well below the 5.30% seen about three weeks ago.
Surprisingly, this is happening as oil prices increase due to rumors of fresh attacks on Iran after the midterms.
So there’s a bit of a tug of war between the AI-selloff and the Middle East conflict, with the selloff currently meaning more to investors.
Is the Mortgage Rate Drop Actually That Meaningful?
I jokingly said on X that the huge drop in mortgage rates today will save the typical home buyer about $32 per month.
It’s actually not really a joke because if the 30-year fixed falls from 7.375% to 7.25% thanks to today’s bond action, that basically is the real savings.
So on the one hand, while it might look and feel pretty good to see mortgage rates dropping today, the actual savings could pale in comparison.
If you’re a home buyer today, I’d imagine that $32 per month wouldn’t sway you too much.
Especially if you own a lot of stocks and you’re watching your portfolio get decimated in the process.
There is the so-called wealth effect where you’re more willing to spend if you feel richer, thanks to paper gains in your investment account.
Assuming that number isn’t as big as it was yesterday or last week, it might give you pause to move forward with a home purchase in today’s environment.
Do Mortgage Rates Affect Sentiment?
However, my personal feeling is that mortgage rates weigh heavily on sentiment.
If we look at the math, it’s not that meaningful to save less than $50 per month on your housing payment.
Sure, every little bit helps, but when you’re paying thousands per month, what good does $32 actually serve?
Well, there’s something to lower mortgage rates and home buyer sentiment.
I think when prospective home buyers see headlines that mortgage rates are falling they get more excited about buying.
They get a sense of urgency that it’s time to jump in and stop sitting on their hands.
We’ve heard about so-called “magic numbers” where if mortgage rates fall to X number, the buyers return.
So even if it doesn’t feel like much, there is a lot of meaning to these rate drops.
It’s exactly the same as when they go up. The difference in payment probably isn’t huge, but it can deter buyers from diving in.
Read on: Compare monthly payments side by side with my mortgage rate calculator.
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