What’s driving current mortgage rates?
Mortgage rates today are still nearly unchanged. But what’s not to like? A 30-year mortgage at 3,75 percent is hardly anything to sneeze at.
Investors shrugged off President Trump’s not-unexpected nomination of Jerome Powell for Fed Chair, and the Republican party’s proposed tax plan. Trading volumes were very low and rates did not move much.
This morning’s Monthly Employment Situation report for October contained a few surprises. For one thing, the unemployment rate dropped to 4.1 percent, when analysts had predicted that it would remain unchanged at 4.2 percent. That’s bad for rates.
However, that was offset by two things — employment expanded by only 261,000 non-farm payrolls, far short of the anticipated 335,000. And average hourly earnings, expected to increase by .2 percent, stayed the same, removing inflationary pressure and good for rates.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||3.250||3.786||-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 mixed and flat (neutral for ates)
- Gold prices fell $12 an ounce to $1,268 (bad for rates, because falling gold prices usually accompany economic growth, which usually drives rates highwer.
- 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 dropped three points to an almost-neutral (but still “greedy” 69. And “greedy” investors tend to turn to stocks and from bonds and mortgage-backed securities. It’s moving in the right direction for rates; a month ago it was in “extreme greed” at 92.
Mortgage rates today are still very favorable for home buyers. The climate is highly-encouraging for real estate purchases.
Monday brings no economic reporting. next week is especially light on reporting, with nothing significant scheduled until Thursday’s Weekly Unemployment Claims, and Friday’s Consumer Sentiment numbers.
Rate lock recommendation
Mortgage rates have been relatively stable this week, and today’s reporting did little to change that.You might want to wait until Monday, since that’s traditional a better day to lock than Friday, when lenders price less aggressively going into the weekend.
If you want to “set it and forget it,” thought, current mortgage rates are attractive to make that an okay move.
- 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)