What’s Driving Mortgage Rates Today?
The only major mortgage-related release came from the Commerce Department, and it was a bombshell. April’s New Home Sales report indicated that developers and builders sold 569,000 new homes.
This was a huge plunge from March’s record-breaking figures, and well below the 610,000 anticipated by analysts.
That shows unexpected weakness in a very important part of the US economy, which is terrific news for mortgage rates. Expect them to be a little lower this morning than yesterday’s close.Verify your new rate (Sep 22nd, 2019)
Today’s Mortgage Rates
|Conventional 30 yr Fixed||3.750||3.750||Unchanged|
|Conventional 15 yr Fixed||3.125||3.125||Unchanged|
|Conventional 5 yr ARM||3.000||3.629||-0.03%|
|30 year fixed FHA||3.250||4.221||-0.01%|
|15 year fixed FHA||2.750||3.637||-0.01%|
|5 year ARM FHA||2.875||3.985||-0.01%|
|30 year fixed VA||3.375||3.540||Unchanged|
|15 year fixed VA||2.875||3.181||Unchanged|
|5 year ARM VA||3.250||3.304||Unchanged|
This morning’s data is not nearly as favorable for interest rates, however, and is likely to offset some of the good news from the housing market.
- All three stock markets: all three major indexes up slightly (slightly bad for rates)
- 10-year Treasury yield: down still at 2.24 percent percent (neutral)
- Oil is over$51 but slightly lower than yesterday: (better, because when you have decreasing demand for a finite resource causes prices to fall and inflation concerns to abate).
- Gold slightly down (gold usually rises when economic news is bad, so it doesn’t appear investors are that worried — bad for rates).
- Fear & Greed: 49 (neutral, but not great, because it increased by two points and moved out of “fearful” range. Scared investors tend to cause mortgage rates to drop. Confident investors cause stocks to go up and interest rates to rise.)
- Wednesday: April Existing Home Sales report. Forecast is 5.6 million sales. More is worse for rates, fewer is better.
- Wednesday: Minutes from Fed meeting. Investors watch closely for indications of future rate increases.
- Thursday: Weekly Unemployment Claims: Estimated 235,000. More is better for rates, but data is only weekly so less important.
- Friday: Durable goods orders for April: Estimated to drop one percent. Larger drop would be good for rates, increase would be bad. This report is fairly important.
- Friday: Consumer Sentiment for May: Expected reading is very high at 97.7. Anything lower would be good for rates.
Rate Lock Recommendation
I expect mortgage rates to perhaps rise slightly later today, and would lock if I had a loan closing soon. Your own risk tolerance and goals may vary.
- LOCK if closing in 7 days
- LOCK if closing in 15 days
- FLOAT if closing in 30 days
- FLOAT if closing in 45 days
- FLOAT 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.