What’s driving current mortgage rates?
Mortgage rates today are virtually unchanged over the last two days. Yesterday’s Fed meeting offered no surprises.
And this morning’s Weekly Unemployment Claims report, which came in lower than expected (bad for rates) made little difference. Probably because a weekly report is not that important.
However, things could change quickly. The House releases its tax reform plan, and President Trump will announce his pick for Fed Chair.Verify your new rate (Dec 10th, 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||3.375||3.830||+0.04%|
|30 year fixed FHA||3.375||4.360||Unchanged|
|15 year fixed FHA||3.000||3.946||Unchanged|
|5 year ARM FHA||3.250||4.345||Unchanged|
|30 year fixed VA||3.500||3.672||Unchanged|
|15 year fixed VA||3.250||3.559||Unchanged|
|5 year ARM VA||3.500||3.626||Unchanged|
Today’s indicators are mixed lot, but the rate changes have been minimal.
- Major stock indexes are down (bad for rates)
- Gold prices rose $2 to $1,280 an ounce (good for rates, because rising gold prices usually accompany economic instability, which usually drives rates lower.
- Oil remained at $54 a barrel (neutral for rates because increasing energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries held steady at 2.36 percent (neutral for rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index rose five points to a “Greedy” 72. And “greedy” investors tend to turn to stocks and from bonds and mortgage-backed securities. In addition, this index is moving in the wrong direction for mortgage rates.
Mortgage rates today are still very favorable for home buyers. The climate is highly-encouraging for real estate purchases.
This week brings some interesting economic reporting. Pay attention if you’re still floating a rate.
- Friday brings the most important report of the month — the Employment Situation report for October rom the Labor Department. The unemployment rate should stay unchanged at 4.2 percent, and analysts expect that 325,000 non-farm payrolls were added. But anything unexpected could spike or drop rates very quickly.
Rate lock recommendation
Mortgage rates have been relatively stable this week, but all could change with tomorrow’s uber-important Monthly Employment Report. The lock decision mainly rides on your comfort with risk. Rates are good now if you want to “set it and forget 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. Interest rates and yields are not mysterious. You calculate them with simple math.Verify your new rate (Dec 10th, 2018)