What’s Driving Mortgage Rates Today?
No major economic reports made their presence felt today, but it probably wouldn’t have mattered if they had. The Trump versus Comey contest has all eyes and will likely influence mortgage rates far more than any numbers generated by the bureaucracy.
Good News For Rate Shoppers: Trump Vs. Comey
Why should a dispute / firing between two of the most influential people in the US affect your mortgage rate? Because they are two of the most influential officials in the land. At least one of them still is.
The issue with the whole Trump / Comey problem is that the investigations into this administration’s campaign, plus the search for a successor are extremely de-stabilizing to our economy. No one knows where to place their bets — with “safe” bonds or aggressive stocks.
Will we eat borscht or burgers? Take a look at the figures below, and you’ll probably figure it out.
Mortgage Rates Today
|Conventional 30 yr Fixed||3.875||3.875||Unchanged|
|Conventional 15 yr Fixed||3.125||3.125||Unchanged|
|Conventional 5 yr ARM||3.125||3.704||-0.01%|
|30 year fixed FHA||3.250||4.233||-0.1%|
|15 year fixed FHA||2.750||3.650||-0.04%|
|5 year ARM FHA||3.000||4.021||-0.03%|
|30 year fixed VA||3.500||3.634||-0.02%|
|15 year fixed VA||2.875||3.181||-0.13%|
|5 year ARM VA||3.250||3.305||-0.03%|
- All three stock markets: sharply down (good for rates)
- 10-year Treasury yield: down nine basis points from 2.323 to 2.24 (great for rates)
- Oil is up, still below $50: (slightly bad)
- Gold up more than oil (good for rates)
- Fear & Greed: 53 (excellent; it’s a major plunge south from yesterday’s greedy 67).
There is very little reporting left for this week. Expect the Comey / Trump controversy to continue its influence, with perhaps a little Putin thrown in.
- Thursday: Weekly unemployment, expected to be 240,000 new claims.
Rate Lock Recommendation
I expect mortgage rates to fall today and would lock if I had a loan in the works. Your own risk tolerance and goals may vary.
- LOCK if closing in 7 days
- LOCK if closing in 15 days
- LOCK if closing in 30 days
- LOCK if closing in 45 days
- LOCK if closing in 60 days
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.