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 patters 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. The money that goes to fund mortgage loans comes from investment in mortgage-backed bonds.

Mortgages make up a significant part of the bond market.

The ten year US treasury yield is often used to track and predict mortgage rates, as they almost always move in concert. When the bond market is doing well, yields and interest rates fall.

When investors leave bonds, triggering a bond market sell-off, mortgage rates rise. Conventional wisdom suggests that when the stock market rallies, investors are selling bonds to buy stocks.

Conversely, when the stock market falls, bond yields and therefore mortgage rates will also decline.

This is based on the assumption that the stock and bond markets compete for the same investment money. However, from through the beginning of , this assumption broke down. Plummeting interest rates accompanied a rising stock market. The stock and bond markets rallied together.

This can be credited to an unprecedented mix of economic conditions, along with the activity of the Federal Reserve, which boosted both the stock and bond markets through its asset purchase program, known as Quantitative Easing.

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 macro-economic perspective, those low rates should eventually undergird a stock market rise.

Some economists fear that as the Fed winds down this program, rising mortgage rates will derail the stock market rally. There are a host of other factors that impact mortgage rates on a daily basis. Many of these are completely unrelated to the stock market. Inflation expectation, regulatory changes and even technical patterns can affect mortgage rates.

anajevopule.web.fc2.com - Compare mortgage, refinance, insurance, CD rates

The largest investors in mortgage-backed bonds are Fannie Mae and Freddie Mac. Thus, any change in behavior by these entities can have a significant impact on the price of mortgage bonds, and therefore on rates. Understanding how mortgage rates and the stock market interconnect can help both investors and mortgage holders track patterns and anticipate moves.

However, an exact or predictable correlation will never play out. With more than a decade of experience, Gregory Erich Phillips is a trusted expert on real estate and mortgage financing.

As an author, Phillips is known for his writings on economics, personal finance, religion, politics and culture.

The Correlation Between Mortgage Rates & the Stock Market | Finance - Zacks

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This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. These returns cover a period from and were examined and attested by Baker Tilly, an independent accounting firm. Visit performance for information about the performance numbers displayed above. Skip to main content. More Articles Does the Stock Market Affect the Housing Market? The Effects of the Mortgage Crisis on the Stock Market.

Fed rate hike: What it means for mortgage rates - Mar. 15,

Mortgages are Packaged as Bonds The money that goes to fund mortgage loans comes from investment in mortgage-backed bonds. The Relationship between Stocks and Bonds Conventional wisdom suggests that when the stock market rallies, investors are selling bonds to buy stocks.

Economics of a Vibrant Housing Market Low interest rates help to spur the housing market. Other Drivers of Mortgage Rates There are a host of other factors that impact mortgage rates on a daily basis. References 2 Mortgage Rate Update: How the Stock Market Impacts Mortgage Rates Business Insider: The Correlation Between the Stocks and Bonds. Resources 2 Yahoo News: Will Rising Interest Rates Hurt the Stock Market?

Stocks, Bonds, Positively Correlated. About the Author With more than a decade of experience, Gregory Erich Phillips is a trusted expert on real estate and mortgage financing.

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