What’s Driving Mortgage Rates Today?
As of this morning, major US stock indexes and mixed but flat, and ten-year Treasury yields have not moved from 2.5 percent. Oil is down, gold is up — both indicators of softer economies. Finally, CNNMoney’s Fear & Greed Index has moved further from Greed and firmly into Neutral — all good signs for mortgage rates today.
With no pertinent economic reports due today, expect mortgage rates to be driven largely by global and local news and silly rumors. However, the rest of the week has some interesting stuff.
Wednesday: Existing Home Sales from National Association of Realtors
February’s Existing Home Sales report from the National Association of Realtors measures housing sector strength and potential mortgage credit demand. Analysts anticipate a decline in home resales. The bigger the decline the better for interest rates.
Thursday: February’s New Home Sales from the Commerce Department tracks a much smaller percentage of home sales than Wednesday’s report covers, so it’s considered less important. Experts believe the report will show a small increase.
Friday: The Commerce Department announces February’s Durable Goods Orders. It’s an important measurement of manufacturing sector strength, recording new orders for expensive and durable items like aircraft. Analysts expect a 1.3 percent increase in new orders. More is better for the economy but worse for mortgage rates; the reverse is also true.
Today’s Mortgage Rates
** FHA APRs include government-mandated mortgage insurance premiums (MIP).
These rates are averages, and your rate could be lower.
Tuesday brings no scheduled pertinent economic reports. Mortgage rates will largely be driven by the usual suspects — global economic news, stock market activity and random tweets from the White House.
Rate Lock Recommendation
This is a good time to take advantage of the drop in pricing. I recommend locking for anyone closing in the next 30 days, and even longer if your lender will do it for no extra charge.
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.