What’s Driving Mortgage Rates Today?
Mortgage rates today are higher. All three stock indexes are up this morning, oil is up and gold is down. This indicates a rising rate environment, with good economic news but do push mortgage rates up.
CNNMoney’s Fear & Greed Index has taken a more aggressive stance, moving from Extreme Fear among investors to Neutral. While “neutral” isn’t scary, it’s the direction of the movement we want to note here.
The ADP Employment Report
This morning’s monthly employment report from payroll processing giant ADP exceeded all expectations by a huge margin. ADP said private U.S. businesses expanded by 263,000 jobs in March, while analysts had expected just $175,000.
It was also the biggest one-month gain since December 2014. Th US Department of Labor droops ints March figures on Friday. This healthy ADP report suggests job growth may surpass the 178,000 jobs analysts expected, which would be a big deal.Verify your new rate (Jan 24th, 2020)
Mortgage Rates Today
* FHA APRs include government-mandated mortgage insurance premiums (MIP). See our assumptions.
These rates are averages, and your rate could be lower.
Other important reports to expect this week include:
Weekly Unemployment and Employment Situation Reports
While we get the week’s unemployment numbers tomorrow, that news will likely be ignored by investors as they await Friday’s much-more-important numbers.
The best (or biggest report, anyway), comes on Friday morning. The Labor Department will post March’s Employment report. Experts anticipate that the unemployment rate remained at 4.7 percent, and that the economy added 178,000 payrolls during the month, while earnings rose 0.3 percent.
This week may be pretty volatile. I recommend in contact with your lender if you have not yet locked.
Rate Lock Recommendation
I recommend locking for anyone closing in the next 30 days, and anyone whose approval can’t sustain a rate increase on Friday.
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.Verify your new rate (Jan 24th, 2020)
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%
The 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.