What effect does a falling dollar have on mortgage rates?

Question

What effect does a falling dollar have on mortgage rates?

Answer 1

That all depends on the situation. The forces that impact the currency markets really have no impact whatsoever on mortgage rates. Why? Because mortgage rates are based on the prime rate. And currency values have nothing at all to do with the prime rate.

However, the reason why the dollar is falling and why mortgage rates are dropping could be the same or similar.

For instance, if consumers feels the economy isn't good and/or will continue slumping, then that could make foreign investors nervous. So they may shy away from the dollar, causing it to drop.

And when consumers don't feel happy about the state of the economy, they will tend to tighten their belts and spend less to ride it out. And that means they won't be in the market to buy a house. Mortgage lenders may have to drop their rates as an incentive to convince consumers to buy.

So consumer perception of the overall economy could effect both the dollar and mortgage rates.

But then again, it might not. Foreign investors may not feel the same way as US consumers. So foreigners may continue buying dollars because they think the economy isn't slumping, isn't as bad as consumers feel it is, or the slump won't be as bad as consumers think.

And this is what makes economics both fun and exciting. It's all a matter of how you read things and perceptions.

Answer 2

If the perception is that the dollar is falling further in the future, the lender wants more money in the future in exchange for a given amount today.  so that would mean mortgage rates would be higher.

Answer 3

The Falling Dollar has Zero effect on Mortgage rates because currency valuations only apply to Import/Export of Goods/Services.

A falling dollar might impact the cost of your house because parts are made in Germany or China. But your mortgage (ie: The Lending of Money by the Bank) has no impact on the foreign exchange rate.