What’s Driving Mortgage Rates Today?
With no important economic reporting due today, investors will likely focus on the two Treasury auctions taking place. If today’s ten-year auction goes well, and tomorrow’s 30-year Treasuries are snapped up, mortgage rates today and later this week could fall.
The opposite is also true.Verify your new rate (Jul 8th, 2020)
Current mortgage rates would be a little higher, because all other indicators are positive and / or inflationary.
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.
This early part of this week is pretty light on data.
However, Thursday does deliver the Weekly Jobless Claims, March’s Producer Price Index (PPI), and a preliminary Consumer Sentiment reading. Analysts expect the PPI to increase by .1, and the Consumer Sentiment level to fall by a substantial .9.
Anything significantly diverging from expectations can push mortgage rates up or down.
Finally, Friday has a couple of important releases — the Consumer Price Index (CPI), a key inflation indicator, and the Retail Sales report.
The catch is that the bond markets will be closing early for a holiday weekend. This means mortgage pricing is likely to be very conservative on Friday, as lenders won’t want to get caught closed while events cause rates elsewhere to rise. (This, in the industry, is called a “tape bomb.”)
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.
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 (Jul 8th, 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.