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Posted 08/27/2008

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Why Economic Weakness In Europe Is Causing Mortgage Rates To Fall

In the United States, tales of economic gloom in Europe barely register in our business newspapers let alone our local ones

But, for Americans in need of a mortgage, what happens economically across the Atlantic Ocean can have a big impact on mortgage rates here in the United States.

It all comes down to the U.S. dollar.

After several years of strong growth, there's growing evidence of a recession in Europe's two largest economic regions:

So, in search of safer markets in which to invest, currency traders are flocking to the safe haven of the United States dollar.  Since late-July, the greenback is up nearly 10 percent against both the Euro and the British Pound.

This dollar movement is helping home buyers because the mortgage bonds used to make mortgage rates are priced in U.S. dollars.  So, as the dollar gains in value, it's bringing new investors into the mortgage bond market.

More demand for bonds means higher bond prices and with higher prices comes lower rates.  This is a major reason why mortgage rates have been on a slow downward trend over the past few weeks -- the dollar is carrying them lower.

Now, if this reads like jibberish, remember that you don't have to reference the dollar's relative strength any time you want a mortgage rate quote.  Track my commentary on Twitter or just email me anytime.

Today, it's the dollar that's moving markets.  Tomorrow, it could be something else.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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