What’s driving current mortgage rates?
Our average mortgage rates today did not change, despite the release of this morning’s Producer Price Index (PPI) for October. Economists predicted to rise by .1 percent, and the index blew away expectations by increasing .4 percent.
This number measures inflationary pressure at the manufacturing end of the economy. Higher is bad for rates, but investors seem to have ignored these results, probably waiting for tomorrow’s much more important CPI report (see below).
Verify your new rate (Dec 12th, 2018)
Today’s mortgage rates
|Conventional 30 yr Fixed||3.750||3.750||Unchanged|
|Conventional 15 yr Fixed||3.250||3.250||Unchanged|
|Conventional 5 yr ARM||3.375||3.830||Unchanged|
|30 year fixed FHA||3.500||4.486||Unchanged|
|15 year fixed FHA||3.125||4.072||Unchanged|
|5 year ARM FHA||3.250||4.345||Unchanged|
|30 year fixed VA||3.625||3.798||Unchanged|
|15 year fixed VA||3.250||3.559||Unchanged|
|5 year ARM VA||3.500||3.626||Unchanged|
Financial data that affect today’s mortgage rates
Most of these early morning data point to either neutral or falling rates.
- Major stock indexes are down (good for rates)
- Gold prices rose $1 an ounce to $1,279 (very slightly good for rates, because gold tends to rise when investors worry about the economy. And worried investors tend to push rates lower).
- Oil fell $2 a barrel to $55 (great for rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries increased a single basis point (1/100th of one percent) to 2.39 percent (bad for rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index fell 6 points to 53. This is a neutral level, and it’s good because the index moved in a “less greedy” direction. And “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.
- Wednesday: The more important Consumer price Index (CPI) for October, also expected to increase by .1 percent. It is like the PPI, but for retail pricing, which consumers pay. We’ll also get the Retail Sales, which analysts expect to remain unchanged.
- Thursday: This is a full day — Weekly Jobless Claims (expected to be 239k), Industrial Production and Utilization (higher is better for rates, expect .4 percent increase and 76.2 level). The NAHB also announces its Home Builders Index.
- Friday: Housing Starts report expects to announce 1.2 billion new groundbreakings.
Rate lock recommendation
Mortgage rates are barely moving these days, so it’s fairly safe to stretch a lock if it makes sense. 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 12th, 2018)