What’s driving current mortgage rates?
This morning, stock market prices, global political news, and commodities like gold and oil (see below) will be the main influencers of mortgage rates.
That could change this afternoon, however, when the Federal Open Market Committee (FOMC, aka “The Fed”) releases its minutes following the conclusion of “The Fed’ monthly meeting. Investors follow these closely for clues about impending rate changes.
This morning, mortgage rates have not changed much.Verify your new rate (Sep 25th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||3.750||3.750||Unchanged|
|Conventional 15 yr Fixed||3.125||3.125||Unchanged|
|Conventional 5 yr ARM||3.250||3.703||Unchanged|
|30 year fixed FHA||3.375||4.326||Unchanged|
|15 year fixed FHA||3.000||3.891||-0.01%|
|5 year ARM FHA||3.250||4.218||Unchanged|
|30 year fixed VA||3.500||3.646||Unchanged|
|15 year fixed VA||3.250||3.501||+0.01%|
|5 year ARM VA||3.375||3.447||-0.01%|
Today’s indicators are mixed but mostly point to increasing rates.
- Major stock indexes are up but only very slightly (neutral-to-slightly bad for rates)
- Gold prices rose for the second day in a row, this time by $11 an ounce to $1,294 per ounce (good for rates, because rising gold usually corresponds to uncertain economic conditions, which tend to decrease interest rates)
- Oil remains at $51 a barrel (neutral for rates — rising energy prices can cause inflation, which increases what investors demand from bond investments)
- The yield on ten-year Treasuries rose one basis point (1/100th of one percent) to 2.34 percent (bad because mortgage rates tend to follow Treasuries).
- CNNMoney’s Fear & Greed Index dropped for the third day in a row, this time by two points to 83. Just one month ago it was at 53 (“Neutral”), to put things into perspective. This is an improvement, but bad for rates, because investor sentiment is still in an “Extremely Greedy” state. “Greedy” investors tend to turn to stocks and from bonds and mortgage-backed securities. When everyone wants to sell their bonds, that pushes prices lower, which in turn causes rates to rise (see below).
Mortgage rates today are still very favorable for home buyers. The climate is highly-encouraging for real estate purchases.
This week is pretty light on information in the early days. On Wednesday, though, we get the Federal Open Market Committee (FOMC) minutes from its monthly meeting. This is the group most think of when they refer to “The Fed.” And investors follow these notes closely for clues about the possibility and timing of future rate increases.
- Thursday: Weekly Jobless Claims (250,000 expected, substantial more could improve rates, fewer could raise them, but this is not a super-important report. Don’t expect miracles either way)
- Friday: This is a biggie. The Consumer Price Index (CPI) shows where prices (inflation) is heading. Experts predict a ,7 percent increase. More is bad for rates, less is good. The “Core” CPI, which ignores volatile commodities like food and energy, will rise .2 percent if the analysts are correct. Again, less is better if you’re floating a mortgage rate.
- Friday: This brings another important reading — the University of Michigan’s survey of Consumer Sentiment. It’s important because consumer spending drives two-thirds of the US economy, and if we’re feeling queasy about our finances, we don’t spend money. If the number is high, we open our wallets. Economists predict a slight drop from 95.1 to 95.0 If they are right, rates will ignore it. If it falls or rises a lot, so could rates.
Rate lock recommendation
If I had a loan that was closing very soon, or just a low tolerance for risk. I’d lock, because some of these indicators are pretty volatile. Here’s the recommendation:
- 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.Verify your new rate (Sep 25th, 2018)