What’s driving current mortgage rates?
Mortgage rates today increased in many cases. This is not unexpected if you saw yesterday’s indicators — almost entirely pointing to near-future increases.
We received no important economic releases this morning, but the impending tax bill vote is probably enough to scare bond investors (trillion $ deficit according to analysts), and cause concerns about inflation.
Lenders can and do absorb minor upward blips in mortgage pricing to stay competitive, and avoid mass confusion by changing rates every hour. But at some point, they have to increase pricing unless they want to lose money on every mortgage they originate.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||3.500||4.486||+0.13%|
|15 year fixed FHA||3.250||4.198||+0.13%|
|5 year ARM FHA||3.375||4.394||Unchanged|
|30 year fixed VA||3.625||3.798||+0.13%|
|15 year fixed VA||3.375||3.685||Unchanged|
|5 year ARM VA||3.625||3.671||Unchanged|
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 mixed and hardly changed (neutral for mortgage rates)
- Gold prices fell for the third straight day. This time by $9 an ounce to $1,276 (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 is up almost $1, pushing $59 a barrel (Bad for interest rates. Higher energy prices play a large role in creating inflation.)
- The yield on ten-year Treasuries rose 2 basis points (2/100th of 1 percent to 2.40 percent (bad for rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index fell 5 points) to 65, the edge of the “greedy” zone. That’s not great, but an improvement for mortgage interest rates. Because the direction it’s moving is less “Greedy” than yesterday. “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.
Monday’s only report is October’s factory orders, which tell us how many “big ticket” purchases are in t works. It’s not the most important data around because it isn’t the lates. But it can indicate which way the economy is leaning because most people and businesses don’t make large purchases unless they are feeling okay about their finances.
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.
Mortgage rates are creeping up. If you have low tolerance for risk and are closing soon, you might want to lock. If you want to bet on the tax bill not making it through the Senate, you might be rewarded with lower interest rates next week. But it’s a gamble.
- 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)