The old adage “knowledge is power” rings true when it comes to geopolitical events and their impact on home loan rates.
Whenever a geopolitical event occurs—and you’ll know because it makes news headlines—tensions rise globally. Within hours, investors look for less risky avenues to invest money. Most likely, money is going to flow into Bonds like Mortgage Backed Securities (MBS). In a nutshell, MBS provide a short-term safe haven for investments.
It’s hard to grasp the billions of dollars that move from Stocks to Bonds during geopolitical events. These moves, however, are quick and isolated in nature, meaning there will be little chance of repetition.
This shift from Stocks to Bonds tends to provide a short-term lock opportunity that homebuyers can leverage.
When Bond prices improve, home loan rates improve.
Much like homebuyers looking to lock in the best rate for the life of their loan, investors seek out the best places to invest their assets.
Long-term economic indicators and short-term geopolitical events all can lead to uncertainty. When there’s uncertainty, investors get nervous, so they shift money from Stocks to Bonds, which are less of a risk. Mortgage Backed Securities are one of these types of Bonds.
The bottom line is: when Bonds prices improve, home loan rates improve.