What’s driving current mortgage rates?
Mortgage rates today did not change, on average. But investors, according to CNNMoney’s Fear & Greed Index, are very, very nervous. Fearful investors can push mortgage rates down if they get a whiff of bad news, so stay tuned.
Weekly Jobless Claims came in much higher than expected (249k when analysts anticipated 239k), which is good for mortgage rates. In most cases, unfavorable economic data are good for interest rates.
Industrial Production and Utilization brought good news for the economy, but not-good news for mortgage rates, coming in at .9 percent, which was .4 percent higher than expectations. (Higher capacity use means factories are increasing output, which means more hiring and potentially higher wages.)
Today, the NAHB also announced its Home Builders Index. This measures builder confidence in the housing market. Anything over 50 is positive, and today’s reading, up two points from last month’s, is really, really positive — it came in at 70. Another data point that’s good for the economy, less good for mortgage rates.
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||Unchanged|
|Conventional 5 yr ARM||3.375||3.830||Unchanged|
|30 year fixed FHA||3.375||4.360||Unchanged|
|15 year fixed FHA||3.125||4.072||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 today’s mortgage rates
Most of these early morning data are all over the place, with a lot of neutral factors.
- Major stock indexes are bouncing back after yesterday’s plunge (bad for rates — rising stock prices tend to go with rising interest rates)
- Gold prices increased slightly ($1) to $1,280 (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 remained at$55 (neutral for rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries remained at 2.35 percent (neutral for rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index fell 13 points to a “fearful” 36. This is great for mortgage rates because “fearful” investors tend to turn from stocks and to bonds and mortgage-backed securities. Higher bond prices push rates lower. Just a month ago the index was at a “greedy” 74.
Mortgage rates today remain very favorable for anyone considering homeownership. Residential financing is still affordable.
- 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 10th, 2018)