What’s Driving Mortgage Rates Today?
There is one economic report, one of modest importance, to affect mortgage rates today. And we’ll only get two reports of any importance all week. Global news, random Presidential tweets, and factors like those listed below will be driving mortgage rates.
Today’s indicators are mixed. If a great rate is available now, however, you might want to “set it and forget it” today.
April factory orders fell by .2 percent, as expected. Falling orders relieve inflationary pressure, which is good. However, this was in line with expectations, so that decrease was already priced into mortgage rates. This morning’s release will have little effect on rates.
Mortgage Rates Today
(as of 10:30 am EDT)
|Conventional 30 yr Fixed||3.750||3.750||Unchanged|
|Conventional 15 yr Fixed||3.000||3.000||Unchanged|
|Conventional 5 yr ARM||3.000||3.629||Unchanged|
|30 year fixed FHA||3.250||4.191||Unchanged|
|15 year fixed FHA||2.750||3.605||-0.01%|
|5 year ARM FHA||2.750||3.925||Unchanged|
|30 year fixed VA||3.375||3.513||Unchanged|
|15 year fixed VA||2.875||3.181||Unchanged|
|5 year ARM VA||3.000||3.232||Unchanged|
We have a mixed bag of economic factors this morning. The attacks in London over the weekend don’t seem to have affected US markets this morning.
- Stock markets: all three major indexes are up (bad for rates)
- 10-year Treasury yield: up two basis points to 2.18 percent (bad for rates but still very low)
- Oil fell again to $47.23 a barrel (good for rates, because cheaper energy means less inflation)
- Gold is up almost $20 an ounce over last week, rising to $1,283.40 (good, because gold normally falls when the economy is strengthening and investors are confident)
- CNNMoney’s Fear & Greed Index: Up two points to a neutral 57. The number is neutral for rates, but the direction of its movement is bad. Fearful investors tend to push rates down, while “greedy” investors invest in stocks and not bonds, and that can make rates rise in the near future.
Thursday: Weekly Unemployment claims — how many people filed new claims for benefits. The report shows strength and weakness in the jobs market, which is very important, but it’s only a weekly report, so it gets little attention unless the actual number of claims deviates crazily from estimates.
This week, analysts expect 238,000 claims.
Rate Lock Recommendation
Rates will probably move within a narrow range this week because of the dearth of economic reporting. 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.
- LOCK if closing in 7 days
- LOCK if closing in 15 days
- LOCK if closing in 30 days
- LOCK if closing in 45 days
- LOCK 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.