What’s Driving Mortgage Rates Today?
Mortgage rates this morning are pretty flat — slightly higher but there is not much movement without any pertinent economic releases.
Stocks are little changed so far and mixed. But there are small indicators that might tell us which way things will move today. Gold is up, and oil is down. Both of those occur when markets soften.
CNNMoney’s Fear & Greed Index supports this as well, dropping to 64 from 65. (When investors are feeling “greedy,” they tend to increase activity, which pushes stock prices higher, fuels inflation concerns, and causes interest rates to creep up.)
Note that all of these movements have been pretty small thus far, however. Analysts at the industry site Mortgage News Daily believe that investors are waiting for see if the Fed will explain its plans for the rest of the year in more detail — specifically, the extent and timing of its planned increases.
** FHA APRs include government-mandated mortgage insurance premiums (MIP).
These rates are averages, and your rate could be lower.
The main release for tomorrow is the relatively-important Producer Price Index, or PPI, for February. This measures economic strength at the producer / manufacturing sector of the economy.
It’s expected to show a modest increase of .1 percent, down from January’s increase of .6 percent. A larger increase could push rates slightly higher, while no increase, or a drop, could cause mortgage rates to fall.
Rate Lock Recommendation
Rates have broken through their ceilings and established a new normal. While they may bump up and down at this new level, I don’t see them dropping significantly in the near future.
Note that this is what I would do if I had a mortgage in process today. Your own goals and tolerance for risk may differ.
What Causes Rates To Rise And Fall?
Mortgage interest rates depend on a great deal on the expectations of investors. Good economic news tends to be bad for interest rates, because an active economy raises concerns about inflation. Inflation causes fixed-income investments like bonds to lose value, and that causes their yields (another way of saying interest rates) to increase.
For example, suppose that two years ago, you bought a $1,000 bond paying five percent interest ($50) each year. (This is called its “coupon rate.”) That’s a pretty good rate today, so lots of investors want to buy it from you. You sell your $1,000 bond for $1,200.
When Rates Fall
The buyer gets the same $50 a year in interest that you were getting. However, because he paid more for the bond, his interest rate is not five percent.
- Your interest rate: $50 annual interest / $1,000 = 5.0%
- Your buyer’s interest rate: $50 annual interest / $1,200 = 4.2%
Your buyer gets an interest rate, or yield, of only 4.2 percent. And that’s why, when demand for bonds increases and bond prices go up, interest rates go down.
When Rates Rise
However, when the economy heats up, the potential for inflation makes bonds less appealing. With fewer people wanting to buy bonds, their prices decrease, and then interest rates go up.
Imagine that you have your $1,000 bond, but you can’t sell it for $1,000, because unemployment has dropped and stock prices are soaring. You end up getting $700. The buyer gets the same $50 a year in interest, but the yield looks like this:
- $50 annual interest / $700 = 7.1% The buyer’s interest rate is now slightly more than seven percent.