What’s driving current mortgage rates?
Mortgage rates today are a completely wacky mixed bag. That can happen, especially with government loans, because there is a little more “wiggle room” for lenders. The profit margins can be larger, allowing lenders to absorb increased costs, to a point.
And then, suddenly, costs reach a level that can’t be absorbed and bingo! You get a sudden increase. The flip side is that costs for government-backed loans may drop the same way. They might back off as lenders recover costs that they never passed along as rates increased, and then suddenly, they may drop.
Conventional loans, which are more subject to smaller movements in markets, usually change more frequently, but in smaller increments. What’s odd today is that FHA rates are down, while VA rates rose.
Existing Home Sales from the National Association of Realtors rose more than expected, which is not good for rates. more demand for housing equals increased need for mortgages, which can cause prices to rise.
Home sales rose 2.0 percent to a seasonally adjusted annual rate of 5.48 million units last month. Sadly, this shortage makes it difficult for many first-time buyers to afford homes.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||-0.13%|
|15 year fixed FHA||3.125||4.072||Unchanged|
|5 year ARM FHA||3.250||4.345||-0.05%|
|30 year fixed VA||3.625||3.798||+0.13%|
|15 year fixed VA||3.375||3.685||+0.13%|
|5 year ARM VA||3.625||3.671||+0.04%|
Financial data that affect today’s mortgage rates
Most of these early morning data are not good for mortgage rates.
- Major stock indexes are up this morning. That;s bad for mortgage rates, because it reduces demand for bonds ans mortgage-backed securities.
- Gold prices fell $5 an unce to $1,282 (bad for rates. Gold tends to rise when investors worry about the economy. And worried investors tend to push rates lower).
- Oil rose $1 to$57 (bad for rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries fell one basis point (1/100th of 1 percent) to 2.35 percent (good for rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index rose 11 points to a neutral-but-greedier 55. While technically neutral, the direction of movement, toward a “greedier” state is bad for rates.
Mortgage rates today remain very favorable for anyone considering homeownership. Residential financing is still affordable.
- Wednesday: Weekly Jobless Claims, Durable Goods Orders, Consumer Sentiment, and the Federal Open Market Committee minutes.
Thanksgiving takes up the rest of the spotlight. Wednesday is the busy day, combining the reports of several days. We will break these out in more detail tomorrow.
Rate lock recommendation
Rate indicators are all over the place today. And this week could be volatile because holiday weeks usually mean less trading, so smaller events can create larger movements. I’d probably wait until next week, unless a need a rate available today. If it’s i your wheelhouse, you might want to nail it down. Tomorrow could be volatile.
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)