Volatile Mortgage Rates-A New Fact of Life?

The sharp rise in mortgage interest rates in the spring of 1987 had several adverse effects, including pricing some prospective buyers out of the housing market. The increase in mortgage rates illustrated how quickly the rates can react to changes in capital market rates. The experience of the last...

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Bibliographic Details
Published inEconomic review (Kansas City) Vol. 73; no. 3; p. 16
Main Author Roth, Howard L
Format Journal Article
LanguageEnglish
Published Kansas City Federal Reserve Bank of Kansas City 01.03.1988
Subjects
Capital markets
Deregulation
Innovations
Interest rates
Mortgage backed securities
Mortgage rates
Mortgages
Mortgages Interest Rates (credit) Pricing
Secondary markets
Secondary mortgage market
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Summary:The sharp rise in mortgage interest rates in the spring of 1987 had several adverse effects, including pricing some prospective buyers out of the housing market. The increase in mortgage rates illustrated how quickly the rates can react to changes in capital market rates. The experience of the last year suggests that mortgage rates may have become more responsive to changes in other capital market rates. The growth of the secondary mortgage market has been the primary factor, causing mortgage rates to move more closely with capital market rates. Because of this closer link, mortgage rates have been more volatile than they otherwise would have been. Moreover, mortgage rates are likely to continue reflecting the volatility of capital market rates more closely. The secondary mortgage market also has been instrumental in achieving important social objectives, including a way for market participants to protect themselves from unexpected changes in interest rates.
ISSN:0161-2387
2163-422X