What’s driving current mortgage rates?
Mortgage rates today are mostly unchanged, taking their cues from political news (odds of tax reform passing, for one thing), and financial numbers like those listed below.
The Labor Department reported that former employees filed just 236,000 claims for unemployment benefits. Analysts expected to see about 240,000.
That’s not good for mortgage rates, because fewer claims indicate that the economy is doing better than expected. In most cases, indications of an improving economy lead to increases in mortgage rates.
However, it’s just a weekly report, and most will ignore it in favor of tomorrow’s Monthly Employment Situation numbers.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||3.500||3.874||+0.04%|
|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||3.625||3.671||Unchanged|
Financial data that affect today’s mortgage rates
This morning’s financial data are fairly neutral for mortgage rates. You can probably safely float a mortgage if you’re not closing in the next couple of weeks. But mortgage rates today are so affordable that “setting and forgetting” your rate could be a valid strategy.
- 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 $1 to $56 a barrel (slightly good for mortgage interest rates. Higher energy prices play a large role in creating inflation.)
- The yield on ten-year Treasuries increased one basis point (1/100th of one percent) to 2.33 percent (slightly bad for rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index fell a single point to 60, the 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, we get what’s arguably the most important economic report for mortgage rates. The Monthly Employment Situation. Analysts predict that the unemployment rate will remain at 4.1 percent, and that we added 200,000 new jobs.
The better the employment situation, the worse it is for mortgage rates. That’s because wages increase, costs increase, and inflation fears increase.
We’ll also get the Consumer Sentiment index, expected to increase from 98.5 to 99. Higher would be bad for rates, but a drop could cause mortgage rates to fall.
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.
You can probably safely float a mortgage if you’re not closing in the next couple of weeks. But mortgage rates today are so affordable that “setting and forgetting” your rate could be a valid strategy.
- 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)