The mortgage market is a complex system that is constantly in flux. The factors that affect mortgage rates can be difficult to understand, but here is a basic overview of how it works.
The price of long-term bonds on Wall Street affects mortgage rates. When investors buy these bonds, it drives the price up and the interest rate down. This is because when the economy is doing well, people move their money out of bonds and into stocks. When the economy is doing poorly, people move their money from stocks into bonds. This movement of money causes the interest rate on bonds to go down, and since mortgage rates are based on the interest rate on bonds, mortgage rates go down as well.
Money flows from Mortgage Banks to entities like Fannie Mae or Freddie Mac. These entities package up the mortgages and sell them as securities to Wall Street. When the housing market crashed in 2008, many of these securities became worthless, which caused the market for mortgages to collapse.
Jumbo loans and non-qualified mortgages are also having a big impact on the mortgage market right now. Jumbo loans are mortgages that are larger than $647,200, and they have been growing in popularity as home prices have been increasing. Non-qualified mortgages are mortgages that don't meet the standards set by Fannie Mae or Freddie Mac, and they have been growing in popularity as well because they offer more lenient terms than traditional mortgages.
The Federal Reserve raising interest rates doesn't directly impact mortgage rates, but it does indirectly affect them. When the Fed raises interest rates, it makes it more expensive for banks to borrow money. This makes it more difficult for banks to lend money, which makes it harder for people to get mortgages.
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