What’s driving current mortgage rates?
Mortgage rates today got the National Home Builders Index for December, seemingly impacting only the 15-year FHA loan. This index gives us a view of homebuilding activity and builder sentiment about the immediate future of the industry.
Today’s reading was unexpectedly high, and 18-year high in fact. It leapt from November’s 70 to 74, This was even more remarkable because November’s reading was revised downward to 69, meaning that if December numbers stick, that’s a 5 point jump.
Nice for builders and mortgage lenders, more traffic for buyers to deal with, and it could put upward pressure on mortgage interest rates. When demand is high, lenders have less reason to cut profit margins.Verify your new rate (Oct 18th, 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||3.250||4.198||+0.13%|
|5 year ARM FHA||3.375||4.394||Unchanged|
|30 year fixed VA||3.500||3.672||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 are mixed and offset each other quite a bit. This push-pull can (and has) resulted in pretty stagnant interest rates thus far.
- Major stock indexes opened higher (bad for mortgage rates)
- Gold prices rose $6 an ounce to $1,266. (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 remained at $57 a barrel (neutral for mortgage interest rates. Higher energy prices play a large role in creating inflation.)
- The yield on ten-year Treasuries is unchanged at 2.37 percent (neutral for rates, because mortgage rates tend to follow Treasuries)
- CNNMoney’s Fear & Greed Index frose 5 points to 73, well into “greedy” territory. This is one case in which greed isn’t good. “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.
- Wednesday is the day the National Association of Realtors releases its existing home sales for November
- Thursday, we get the Weekly Unemployment Claims and Leading Economic Indicators
- Friday is the big day — the one to pay serious attention to if you’re floating a rate — releases include Durable Goods Orders, Personal Income, Consumer Spending, Inflation, New Home Sales, Consumer Spending and Consumer Sentiment — all potential indicators of inflation (or lack of)
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
Video: More about mortgage rates
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 (Oct 18th, 2018)