What’s driving current mortgage rates?
Mortgage rates today finally moved after remaining static for four days straight! Unfortunately, this movement was in an upward direction. According to technical analysts, who mainly look for patterns and not the factors underneath that drive them, this is mainly that bond (and stock) prices can get “stuck” within a narrow range, and investors hesitate to be the first to break out of that range. Just a “herd” thing.
Fundamental analysts, who try to make sense of markets by looking into factors like economic reports, company reports, and other data, come to different conclusions. They would consider today’s Unemployment Claims Report, which came in with 239k claims instead of the expected 231k, good for rates because it indicates that the economy may be weaker than previously thought.Verify your new rate (Dec 10th, 2018)
Today’s mortgage rates
|Conventional 30 yr Fixed||3.750||3.750||Unchanged|
|Conventional 15 yr Fixed||3.250||3.250||+0.13%|
|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|
Financial data that affect mortgage rates
Today’s indicators are mixed lot, mostly offsetting each other. I’d not expect mortgage rates to make huge movements unless we declare war on someone this week or someone adds a bomb to the impending tax bill here in the US.
- Major stock indexes are down slightly (slightly good for rates)
- Gold prices fell $2 an ounce to $1,283 (bad for rates, because falling gold prices usually accompany economic confidence, which usually drives rates bond prices down and rates up).
- Oil remains at $57 a barrel (neutral because it has not changed. However, oil over $50 is concerning, because higher energy prices play a large role in creating inflation, and last week, oil was hovering around the $50 mark)
- The yield on ten-year Treasuries rose 3 basis points (3/100th of one percent) to 2.34 percent (bad or mortgage interest rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index fell 4 points, after a 9 point drop yesterday. The new reading is 54, neutral. This is good, because less “greedy” investors tend to turn from stocks and to bonds and mortgage-backed securities. Higher bond prices push rates lower.
Mortgage rates today remain very favorable for anyone considering homeownership. Residential financing is still affordable.
Today is the last day of this business week.
Friday: Consumer Sentiment index: Higher is bad for mortgage rates, lower is better. Analysts expect it to remain unchanged at 100.7
Rate lock recommendation
Mortgage rates have been relatively stable this week, and today’s reporting did little to change that. If you are closing in, say, 16 days, you might want to wait a day or two and get a 15-day rather than a more-expensive 30-day lock. If you’re closing in 32 days, it’s probably worth holding out for a 30-day timeline.
In general, 30-day is the standard price most lenders will (should) quote you. The 15-day option should get you a discount, and locks over 30 days usually cost more.
If you want to “set it and forget it,” though, current mortgage rates are attractive enough 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)