What’s Driving Mortgage Rates Today?
Mortgage rates are trending unchanged-to-lower today as markets seem to be heading out early for Memorial Day weekend.
The biggest news of the day is GDP — Gross Domestic Product — which rang in at an annualized 1.2% for the first quarter. This is higher than the original estimate of 0.7%, but still below where experts say the economy should be.
It’s a slightly positive report (bad for rates) but offset by the reminder that the economy is still dragging its fee.
Mortgage rates are little affected by the news.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||Unchanged|
|Conventional 15 yr Fixed||3.125||3.125||Unchanged|
|Conventional 5 yr ARM||3.000||3.629||-0.04%|
|30 year fixed FHA||3.250||4.212||+0.01%|
|15 year fixed FHA||2.750||3.626||Unchanged|
|5 year ARM FHA||2.875||3.993||Unchanged|
|30 year fixed VA||3.375||3.537||Unchanged|
|15 year fixed VA||2.875||3.181||Unchanged|
|5 year ARM VA||3.125||3.277||-0.01%|
This morning’s data is somewhat favorable for interest rates.
- Stock markets: all three major indexes edged down (slightly good for rates)
- 10-year Treasury yield: down one basis point (.01) to 2.25 percent (good for rates)
- Oil rose about $0.30 to $51.65 (bad for rates because it raises 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 57. 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.
- Markets closed Monday for Memorial Day
- Tuesday: Personal Income & Outlays (a key indicator of inflation watched by the Fed)
- Friday: Employment Situation report (arguably the most important report each month)
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.