What’s driving current mortgage rates?
Mortgage rates today changed very little. That’s in spite of a surprise result in what’s arguably the most important economic report for mortgage rates, the Monthly Employment Situation for November. Analysts predicted that the unemployment rate would remain at 4.1 percent, with 200,000 new jobs, and wage gains of .3 percent.
The better the employment situation, the worse it is for mortgage rates. That’s because wages increase, costs increase, and inflation fears increase.
We got better-than-expected job additions, with 228,000. That would be bad for mortgage rates. But we also got less wage pressure, because wages only increased .2 percent. And the unemployment rate remained at 4.1 percent, which is neutral for interest rates.
Today’s Consumer Sentiment Index from the University of Michigan is widely followed because it indicates consumer outlook and likeliness to spend money. Analysts expected to see an increase from 98.5 to 99, which would have been bad for mortgage rates.
But they got an unexpected drop, to 96.8, the lowest in three months. Which does not bode well for holiday retail figures, but is good for mortgage rates.Verify your new rate (Dec 10th, 2018)
Mortgage rates today
|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||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||3.625||3.798||+0.13%|
|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 indicate rising rates. I recommend locking if you’re closing soon.
- Major stock indexes are higher across the board (bad for mortgage rates)
- Gold prices tanked by $18 an ounce. (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 rose $1 to $57 a barrel (bad for mortgage interest rates. Higher energy prices play a large role in creating inflation.)
- The yield on ten-year Treasuries increased five points (5/100ths of one percent) to 2.83 percent (bad for rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index rose 4 points to 64, the dividing line between “neutral” and “greedy.” That’s bad 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 brings no pertinent economic reports for mortgage interest rates. That is typical. Rates take their cues from financial data, politics, and Twitter on days like this.
Rates can drop on Mondays if nothing changes the economy over the weekend. That’s because lenders tend to price conservatively on Fridays, and then drop rates back on Mondays if it’s safe to do so.
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 (Dec 10th, 2018)