Cheaper Oil is Driving Mortgage Rates Down

While falling oil prices naturally lead to cheaper gas costs, they’re also having a not-so-obvious impact on driving down mortgage rates, at least for the time being, according to The New York Times.

Earlier this month, average fixed mortgage rates fell to their lowest levels of the year, according to a weekly mortgage survey from Freddie Mac. As of December 18, the 30-year fixed-rate national average was 3.80%, while the national average for the 15-year fixed-rate loan was 3.09%.

The “bottoming out” of average fixed-rates followed the lowest yields on 10-year Treasuries since May 2013, notes the NY Times.

Also something to consider, the price of Brent crude has been trading in the $60 range, a substantial fall from its peak of $115 a barrel in mid-June.

“In general, interest rates tend to be very sensitive to inflation,” writes The NY Times. “Because cheaper oil lowers costs throughout the American economy, inflation is pulled downward as well,” said Keith Gumbinger, vice president of financial publisher, in the article.

As the U.S. economy strengthens, the nation is appearing to be more of a “safe bet” for global investors, many of whom are seeking shelter in the U.S. Treasuries.

“Investor demand is chasing that strong dollar into U.S. bonds, and those investors are requiring less yield,” said Redfin Chief Economist Nela Richardson. “And as investors require less yield to invest in those bonds, it also decreases mortgage rates.”

While it is uncertain how long oil prices will help support low mortgage rates, sustained low-level energy prices could eventually cause a counter effect on interest rates as consumer spending increases, thus leading to rate gains if the economy continues to strengthen.

Read more at The New York Times.

Written by Jason Oliva

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please