Regional Differences

Although the Federal Reserve Board sets its inter-bank rate as a uniform rate that applies the same to all banks, regardless of location, there are still differences in the current mortgage rate that are influenced by local conditions.

Granted the Fed may still be king in terms of setting the tone and direction of the current mortgage rate. However, the biggest changes in either direction remain to be seen. In response to the Fed’s actions, it is anticipated that smaller differences will still appear as a result of local economic conditions, yet this can not be said for certain.

In 2003, the index rate actually varied between states by several basis points, ranging from a low of 5.43 percent in Hawaii, to a high of 5.97 percent in Indiana, representing a total spread of 54 basis points, or more than a half of a percent.

Even within states, the rate may vary between metropolitan areas. In California, for example, during 2003 the index rate in San Diego was 5.40 percent, in San Francisco it was 5.48 percent, and in Los Angeles it was 5.55 percent.

Generally speaking, if local economic conditions mirror national trends, the current rate for that region will track closer to the national index rate. But if a region is under economic pressure and the mortgage market is soft for that area, rates will be lower, as local mortgage companies will feel the need to lower rates by as much as possible in order to respond to the decreased demand.

In such a case, the mortgage issuer is lowering rates by cutting into its own profit margin, since they still have to pay the same amount for funds as banks in regions with better economies.

On the other hand, if a given region is seeing good economic times with new employers moving into the area, the mortgage rate for that region will track several basis points higher than the national index.