What’s Driving Mortgage Rates Today?
Mortgage rates today could experience significant changes from previous interest rates. That’s because we are coming off a holiday weekend and there are several reports due as well.
- Personal Income for April (increased by .4 percent, as expected — neutral)
- Consumer Spending for April (increased by .4 percent, as expected — neutral)
- Core Inflation Rate for April (expected to increase by .1 percent but actually fell — great for rates)
- Case-Shiller Home Prices (increase by annualized 5.8 percent, as expected — neutral)
- Consumer Confidence Index for May (expected to decrease to 118.6, actual was a lower 117.9 — good for rates)
Overall, indicators are good for rates. Reports came in either as expected or pointing toward a softening economy and decreased concerns about inflation. For instance, consumer confidence is still high, but it is lower than expected, and less-confident consumers are less likely to spend and drive up prices.
The Core Inflation Rate fell, giving the Fed less reason to consider interest rate increases.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||Unchanged|
|30 year fixed FHA||3.250||4.210||Unchanged|
|15 year fixed FHA||2.750||3.629||Unchanged|
|5 year ARM FHA||2.875||3.974||-0.01%|
|30 year fixed VA||3.375||3.532||+0.01%|
|15 year fixed VA||2.875||3.181||Unchanged|
|5 year ARM VA||3.250||3.306||+0.03%|
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 two basis points (.02) to 2.23 percent (good for rates)
- Oil fell below $50 a barrel (excellent for rates)
- Gold fell slightly (slightly bad, because gold normally rises when investors are truly worried about the economy)
- CNNMOney’s Fear & Greed Index: Down 5 points to a neutral 52. The number is neutral for rates, but the direction of its movement is good. It means investors are less optimistic, and that tends to push rates down.
The rest of this short week brings several reports:
- Wednesday: Pending Home Sales for April
- Wednesday: The Fed’s “Beige Book” notes about the economy
- Thursday: ADP Employment Report (May)
- Thursday: Weekly Unemployment Claims (238,000 expected)
- Thursday: ISM Manufacturing Index for May
- Friday: Monthly Employment Report (very important, 4.4 percent unemployment expected)
Rate Lock Recommendation
Indications are that rates could and should go lower than they started this morning. If I like a rate, I’ll probably lock, but I’d be tempted to wait at least until this afternoon to see if I could do better. Your own goals and tolerance for risk 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.