Mortgage rates today have been reversing improvements made yesterday afternoon, but have been bumping up and down within a very narrow range. We are waiting for the next trend to form, and tomorrow's Monthly Employment Report could easily do that.
Today's Weekly Jobless Claims came in much higher than expected, 248,000 instead of the anticipated 238,00. That's good for mortgage rates, as it indicates weakening in the labor market and no inflation in wages. Too bad that it's only a weekly report.
The ISM report for May indicating US manufacturing is gaining in strength, increasing to a level of 55. However, that's in line with expectations and should have minimal impact.
However, ADP reported adding a monstrous 253,000 jobs to the market, blowing away expectations of 185,000 jobs. That is likely to be much more influential than the weekly report, because it's monthly. And because many feel that it foreshadows tomorrow's Employment Report from LaborÂ Department.
(as of 10:30 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||4.198||-0.01%|
|15 year fixed FHA||2.750||3.633||+0.01%|
|5 year ARM FHA||2.875||3.981||Unchanged|
|30 year fixed VA||3.375||3.523||Unchanged|
|15 year fixed VA||2.875||3.181||Unchanged|
|5 year ARM VA||3.250||3.308||+0.01%|
All indicators are bad for rates. Every one of them highlights economic strength, which tends to push investors into stocks and out of mortgage-backed securities (MBS) and bonds. That causes interest rates to rise.
The rest of this short week brings one major report:
If the Employment Report tomorrow follows today's ADP data, we could see a jump in rates tomorrow morning. If it does not, rates could drop. If I could lock a rate I liked today, and I was closing soon, I'd probably do it.
If you're a gambler or can afford to wait for a better rate, you might choose to float. Everyone's goals and tolerance for risk are different.
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 payingÂ five percent interest ($50) each year. (This is called its â€ścoupon rate.") Thatâ€™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.
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.
TheÂ buyer gets an interest rate, or yield, of only 4.2 percent. And thatâ€™s why, when demand for bonds increases and bond prices go up, interest rates go down.
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 gettingÂ $700. The buyer gets the same $50 a year in interest, but the yield looks like this:
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)