What’s driving current mortgage rates?
Mortgage rates today fell — good news for anyone floating an interest rate. Payroll processing giant ADP reported adding just 190,000 new payrolls in November. That’s 45,000 fewer than the previous month, which is good for mortgage rates.
However, analysts had predicted a drop in employment, so the effect of today’s release was a bit diminished.
In addition, US productivity remained at 3 percent, when analysts had predicted 3.3 percent. Increasing productivity is generally good for mortgage rates, so this was a disappointment to bond investors and mortgage borrowers.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||-0.04%|
|30 year fixed FHA||3.375||4.360||-0.13%|
|15 year fixed FHA||3.125||4.072||-0.13%|
|5 year ARM FHA||3.375||4.394||Unchanged|
|30 year fixed VA||3.500||3.672||-0.13%|
|15 year fixed VA||3.250||3.559||-0.13%|
|5 year ARM VA||3.625||3.671||Unchanged|
Financial data that affect today’s mortgage rates
This morning’s financial data are neutral-to-favorable for mortgage rates today. And some products prices have fallen dramatically. If floating an interest rate, today might be the day to lock.
- Major stock indexes are very slightly higher, almost unchanged (neutral for mortgage rates)
- Gold prices remained at $1,267. (That is neutral 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 fell 41 to $57 a barrel (slightly good for mortgage interest rates. Higher energy prices play a large role in creating inflation.)
- The yield on ten-year Treasuries fell a huge 6 basis points to 2.32 percent (great for rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index fell again to 61, te dividing line between “neutral” and “greedy.” That’s 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.
Tomorrow, the Labor Department releases the weekly unemployment claims data.
It’s not that important, because it’s only a weekly figure, and everyone is waiting for Friday’s Monthly Employment Situation Report for November, which is one of the most important reports, if not THE most important report, for mortgage rates.
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.
Today, mortgage rates are down. if I had a loan closing soon, I would lock today.
- 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)