What’s Driving Mortgage Rates Today?
The only news affecting mortgage rate today is the weekly unemployment report, which comes out every Thursday.
Jobless claims came in almost exactly as expected, with 234,000 new claims being filed last week. Analysts anticipated 235,000, so this report should have almost no effect on today’s mortgage rates.
Fortunately, yesterday afternoon, the Fed released notes that caused investors to look more favorably on bonds and mortgage-backed securities (MBS) than previously.
In addition, an auction of 5-Year Treasury Notes went well, with rising prices and falling yields (rates). So some lenders did reprice for better in the afternoon, and some of that carried over to this morning.
The data below this morning’s rate table are more favorable for mortgages than yesterday’s were.Verify your new rate (Aug 15th, 2020)
Today’s Mortgage Rates
(as of 11:30 am EDT)
|Conventional 30 yr Fixed||3.750||3.750||-0.13%|
|Conventional 15 yr Fixed||3.125||3.125||Unchanged|
|Conventional 5 yr ARM||3.125||3.672||Unchanged|
|30 year fixed FHA||3.250||4.207||-0.01%|
|15 year fixed FHA||2.750||3.630||-0.02%|
|5 year ARM FHA||2.875||3.993||Unchanged|
|30 year fixed VA||3.375||3.534||-0.01%|
|15 year fixed VA||2.875||3.181||-0.1%|
|5 year ARM VA||3.250||3.289||-0.01%|
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.
- Stock markets: all three major indexes edged up (slightly bad for rates)
- 10-year Treasury yield: down four basis points (.04) to 2.25 percent (good for rates)
- Oil dropped about $1 to $50.70 (good for rates because it eases concerns about inflation)
- Gold prices rose (good, because investors typically push gold prices up when the economy is shaky).
- Fear & Greed: Up 3 points to a neutral 54. The number is not bad for rates, but the upward direction is. It means investors are more optimistic, and that tends to push rates up.
- 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.
- 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 increase today unless something newsworthy breaks or the Fed drops a bombshell on us. If I like a rate, I’ll probably lock. Your own goals and tolerance for risk may vary.
- LOCK if closing in 7 days
- LOCK if closing in 15 days
- LOCK 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.