Yes, mortgage interest rates are near all-time lows but they still jump around quite a bit. Why do they move?
Investors buy mortgage-backed bonds. When this demand is high, then the interest rates necessary to attract investment fall. When such demand is weak, then interest rates go up to attract more investment.
Bad news, for instance, typically increases demand for mortgage backed security. Investors want safety. They may pour of Japan, for instance, after its earthquake and tsunami, and they need a place to park their money.
These moves are typically short-term but they can produce more durable effects on interest rates.
USNEWS.com reports: One of the most important elements driving mortgage rates is investor confidence. In general, natural disasters or political and economic instability undermine that confidence and make the investors who supply the capital needed for home loans nervous.
For example, the recent earthquake, tsunami, and nuclear crisis in Japan raised a host of questions among investors, not only about the future of the Japanese economy, but how an economic slowdown there could potentially impact growth in the United States. Many times, these generalized concerns cause a “flight to quality,” experts say, in which anxious investors move money out of riskier asset classes such as stocks and into those with greater perceived safety—bonds such as mortgage-backed securities and U.S. treasuries.
Heightened demand for these “safer” investments drives down interest rates.