When economists were making predictions for higher rates at the end of 2018, the possibility of a trade war with China was not high on their list of concerns. A trade war is a situation where one country tries to damage the other’s trade by making it more expensive for them to sell or buy goods.
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Even though the economy has been doing well for most of 2019, there is growing concern that a prolonged trade battle between the U.S. and China could slow it down. Recent economic reports have come in weaker than expected, fueling fears that the trade war is already having a negative impact on the economy.
During these periods of fiscal uncertainty, interest rates may fall, which is exactly what they’ve done for the last four weeks, according to the May 23rd Freddie Mac Primary Mortgage Market Survey. This is creating a window of opportunity for homeowners and homebuyers to save potentially thousands of dollars over lower closing costs and potentially lower interest rates for a refinance or purchase mortgage.
Why rates are dropping
There are two things that can motivate how investors trade during volatile economic times: fear and data. “Growth fears related to the escalating trade crisis are starting to show through the economic data that has been missing expectations,” said Tendayi Kapfidze, Chief Economist for LendingTree (Student Loan Hero is a subsidiary of LendingTree).
In the United States, investors tend to buy government Treasury bonds if they are beginning to worry about the health of the economy. Treasury bonds are also a common benchmark that indicate where mortgage rates are headed, and during times of economic instability, the yields tend to go down.
When that happens, the mortgage rates may go down as well. The savings can be substantial at the closing table and over the life of your loan, making it worthwhile to get a rate quote if you were discouraged by the higher rates at the beginning of the year.
Why it may not last long
The equity and bond markets over the long haul tend to follow certain trends, and as time passes and new economic reports come out, their initial concerns may be calmed or confirmed. “Right now, the only data saying the economy is still strong is the economic data. It’s quite a mixed bag, and it is difficult to say if low rates are temporary,” Kapfidze said.
If economic reports continue to show a weakening economy, rates could stay where they are, or head even lower. However, if things begin to pick up and the economic picture starts improving again, rates could quickly resume their march higher, as many economists had predicted at the end of 2018.
What the low rate dips mean for you
If you’re in the market for a home purchase or have been thinking about refinancing, it’s a good idea to reach out to a lender sooner than later. Not all lenders have the same interest rate pricing strategies, so using a rate comparison site to compare several different interest rate and cost estimates may provide you with a valuable snapshot of which lenders are the most competitive right now.
If you find a lender that has the interest rate at a price you want, request a rate lock immediately. Interest rates and the costs associated with them change daily, and securing your pricing as soon as it hits your target protects you against any sudden turn of market events. If you don’t have a home picked out yet, ask your lender if they have any options for you to lock in before you have a property picked out.
The trade war and other economic factors won’t last forever, but the low rates and costs that could be locked as a result could mean a lower payment benefit that lasts for the life of your home loan.