What’s Driving Mortgage Rates Today
Mortgage rates today will be driven by a couple of things. First, the Treasury will auction off ten-year Notes. If demand is high (and with all the turmoil in Europe, it could be), bond prices will rise and interest rates will fall.
The opposite is also true.
Second, the economic data listed below, and, finally, global news, will affect rates today.
Mortgage Rates Today
As of 10:30 EDT
|Conventional 30 yr Fixed||3.750||3.750||Unchanged|
|Conventional 15 yr Fixed||3.125||3.125||Unchanged|
|Conventional 5 yr ARM||3.125||3.678||Unchanged|
|30 year fixed FHA||3.250||4.210||Unchanged|
|15 year fixed FHA||2.750||3.620||Unchanged|
|5 year ARM FHA||2.875||4.015||Unchanged|
|30 year fixed VA||3.375||3.532||Unchanged|
|15 year fixed VA||2.875||3.181||Unchanged|
|5 year ARM VA||3.250||3.347||Unchanged|
Indicators are mixed. They will likely cancel each other out and give us minimal change to mortgage rates.
- Stock markets: all three major indexes are down (good for rates)
- 10-year Treasury yield: up two basis points (two 100ths of one percent) to 2.22 percent (bad for mortgage rates)
- Oil is currently at $46.51 a barrel, continuing a trend of increasing prices started last week (bad, because expensive energy fuels inflation)
- Gold is down to $1,267. (bad, because gold normally falls when the economy is strengthening and investors are confident)
- CNNMoney’s Fear & Greed Index: Down two points to a neutral 55. (That is good for rates. Even though the result is neutral, the direction of change is toward a more fearful state.)
Unlike last week, this week will be extremely busy. six pieces of economic data that are relevant to mortgage rates along with a couple of Treasury auctions.
- Monday: Treasury auction (10-year Notes). if demand is high, rates could fall.
- Tuesday: Treasury auction (30-year Notes) and May’s Producer Price Index (PPI) tracks inflationary pressures for producers. Analysts anticipate no change in the overall reading and 0.2 percent increase in the core data. Good news for mortgage shoppers would be declines in these.
- Wednesday: May’s Retail Sales report measures consumer spending. Experts predict a 0.1 percent increase last month. More would be bad for rates, but a lower reading would be good. Also, May’s Consumer Price Index (CPI). Analysts expect the overall reading to be unchanged with the core reading up 0.2 percent. Weaker numbers would be good for mortgage rates.
- Wednesday: The Fed will release its updated estimates for future economic activity. GDP growth, unemployment and inflation numbers could change rates if there are revisions to major economic numbers. Anything indicating economic heat is bad for rates.
- Thursday: May’s Industrial Production measures manufacturing sector strength. Analysts are expecting to see a 0.1 percent increase. Anything less would be good for rates.
- Thursday: Weekly unemployment claims. Analysts expect 245,000 claims.
- Friday: May’s Housing Starts tracks groundbreakings of new home projects. Analysts predict an increase in starts of new homes last month. A decline would be good for mortgage rates.
- Friday: June’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment measures consumer willingness to spend. It’s one of the more important reports. It is expected to come in at 97.0, down from from May’s 97.1. A smaller-than-expected reading is good for mortgage rates because less spending means fewer concerns about inflation.
Rate Lock Recommendation
All indicators this morning show that rates could rise today. If I were in process with a mortgage, and could not withstand a rate increase, I would probably lock. However, everyone’s needs and tolerance for risk are different. If you are risk-averse and can secure a satisfactory rate this morning, you might want to grab it.
- 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.