What’s driving current mortgage rates?
Mortgage rates today stayed flat following the release of a fairly important report — the Consumer Price Index for November. October’s increased by just 0.1 percent, but November’s rose by 0.4 percent — exactly as predicted by analysts, so this should be a fairly neutral event, already priced into current mortgage rates.
However, later today, the Fed adjourns its meeting and investors and lenders expect Chair Janet Yellen to announce a final rate increase for 2017. Any surprises could move markets dramatically. If the meeting goes as anticipated, rates will likely remain stable.Verify your new rate (Dec 13th, 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||3.500||4.486||Unchanged|
|15 year fixed FHA||3.250||4.198||Unchanged|
|5 year ARM FHA||3.375||4.394||Unchanged|
|30 year fixed VA||3.625||3.798||Unchanged|
|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
This morning’s financial data mostly point to lower or flat interest rates.
- Major stock indexes opened modestly higher than yesterday’s close (slightly bad for mortgage rates)
- Gold prices rose $5 an ounce to $1,247. (That is good 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 dropped $1 to $57 a barrel (good for mortgage interest rates. Higher energy prices play a large role in creating inflation.)
- The yield on ten-year Treasuries fell 2 basis points (2/100ths of one percent) to 2.38 percent (good for rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index stayed at 66, still in “greedy” territory, but neutral because it did not change. “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.
- Thursday brings the usual Weekly Unemployment Claims and Retail Sales for November. More unemployment is good for mortgage rates (relieving upward pressure on wages). Rising retail sales. however, could indicate increasing economic activity, which is inflationary and causes interest rates to rise.
- Friday closes out the week with the Industrial Production report for November. Increasing production usually stems from more demand for products, which tends to cause the cost of money to rise.
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. With rates so stable, it may be worth waiting for a 15-day lock if you’re 17 or so days from closing now.
- LOCK if closing in 7 days
- LOCK if closing in 15 days
- FLOAT 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 13th, 2018)