This past year has been great for stocks, with markets climbing higher and investor confidence staying strong. While that kind of momentum is welcome news for portfolios and retirement accounts, it can have unintended consequences in other areas of the economy including mortgage rates.
When the stock market is on fire, it feels like good news everywhere but mortgage rates usually don’t agree.
Mortgage rates are closely tied to the bond market. When stocks are booming, investors often move their money out of bonds and into stocks to chase higher returns. As demand for bonds drops, bond yields rise and higher bond yields mean higher mortgage rates.
On the flip side, when the stock market gets shaky, investors look for safety. They buy bonds, bond yields fall, and mortgage rates tend to come down.
This doesn’t mean rates move day-to-day based on the stock market alone. Inflation, the Federal Reserve, and economic data all play big roles. But over time, a strong stock market often puts upward pressure on mortgage rates.
