What’s driving current mortgage rates?
Mortgage rates today are getting a push, likely from the impression that the new tax bill, which gives massive breaks to corporations, will likely pass. So stocks have jumped, and that’s almost never good for interest rates.
We have a lot of fairly-important new data to absorb. Beginning with the less-crucial Weekly Jobless Claims. (It’s only weekly, so not a big deal usually), we got 238k when analysts expect 240k. That’s the second week in a row of declining new claims for benefits, which could be slightly bad for mortgage rates.
In other bad news for mortgage interest rates, the Commerce Department released three important figures for October — Personal Income, which rose .4 percent instead of the expected .3 percent, Consumer Spending increased .3 percent (analysts predicted .2 percent) and the Core Inflation Rate rose .2 percent, matching forecasts. These are highly-important because they all pertain to inflation.Verify your new rate (Nov 15th, 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||3.375||3.685||+0.13%|
|5 year ARM VA||3.625||3.671||+0.04%|
Financial data that affect today’s mortgage rates
Mortgage rates have clung to a very narrow range since October. However, early indicators today point to higher mortgage rates. And there is the pending tax reform bill, which if passed could cause rates to spike.
Anything that dumps more money into the system in a short period of time is likely to cause interest rate increases because it triggers inflation pressure. Stay tuned if you are still floating an interest rate.
- Major stock indexes all up, with the Dow breaking 24,000 for the first time (bad for rates)
- Gold prices fell $7 an ounce to $1,285 (That is 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.)
- The yield on ten-year Treasuries remains at 2.38 percent (neutral for rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index increased by 6 points 3rd straight day of increases) to 70, the “greedy” zone. That’s a bad move for mortgage interest rates. And the direction it’s moving is not good because it’s less fearful. “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.
- 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. For instance, if you’re closing in 16 or 17 days, you could probably 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 (Nov 15th, 2018)