What’s driving current mortgage rates?
Mortgage rates today are still unchanged. While normally, we see at least some movement from day-to-day, and interest rates can change several times a day in volatile financial markets, things have been remarkably stable lately.
Today’s only bit of news was not good for current mortgage rates. Case-Shiller’s Home Price Index rose 6.2 percent in September, slightly more than the expected 6.1 percent. More demand for housing equals more demand for mortgages, which can push up home prices and interest 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||3.375||4.394||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
Mortgage rates have not broken out of a very narrow range since October. Financial data that indicate improving or worsening in rates have often offset each other, and the big headline that could cause things to break out has yet to appear.
But there is that tax reform bill, which could potentially blow things open. Stay tuned if you are still floating an interest rate.
- Major stock indexes are up slightly (slightly bad for rates)
- Gold prices fell $1 an ounce to $1,292 (That is slightly bad for mortgage rates. In general, it’s better for rates when gold rises, and worse when gold falls. Gold tends to rise when investors worry about the economy. And worried investors tend to push rates lower).
- Oil remained unchanged at $58 a barrel (Neutral. Higher energy prices play a large role in creating inflation. While $58 is high-ish, the direction of the movement is favorable for rates)
- The yield on ten-year Treasuries did not move, and is still 2.33 percent (neutral, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index dropped 2 points to 57. That’s a move into a less “greedy” state. And the direction it’s moving is better for interest rates. “Fearful” investors push rates down as they leave the stock market and move into bonds, while “greedy” investors do the opposite. That causes rates to rise.
Mortgage rates today remain very favorable for anyone considering homeownership. Residential financing is still affordable.
This week brings a number of fairly-important reports. These indicators may tell us which way mortgage rates are trending.
- Wednesday: Pending Home Sales from the National Association of Realtors also measures home sales. It tracks residential purchases in escrow. September’s numbers fell sharply, October’s were flat; will November reverse the trend? And the Fed will release its Beige Book, which investors track for clues about future rate increases.
- Thursday: A busy day, beginning with Weekly Jobless Claims — will we see an increase over last week’s 239k? More unemployment is good for mortgage rates, while less can cause rate increases. Then, the Bureau of Economic Analysis will release its analysis — Personal Income, Consumer Spending, and the Core Inflation Rate. These are highly-important because they all pertain to inflation.
- Friday: There are no important releases due this day. The monthly Employment Situation report comes out next Friday.
Rate lock recommendation
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.
As stable as things have been lately, it probably makes sense to float an extra day or two if it gets you better pricing. If you’re closing in 16 or 17 days, you could save by waiting until you can lock for 15 days instead of 30.
- 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)