What’s driving current mortgage rates?
Mortgage rates today mosty fell, in part because of an unexpectedly damper on numbers from December’s Consumer Confidence Index, reported by The Conference Board.
Analysts had expected the Index to fall from it’s November high mark of 129.5 to 128.8. That would have been good for mortgage rates. But the Index plunged to 122.1 — a significant event, and even better for mortgage rates.
Economic weakness, which this indicates, is usually good for interest rates.
Today’s economic data, shown below, also points to falling rates. And yet they rose.
So what happened?
Analysts at MarketWatch believe that public perception (which is what this index measures, not actual economic results) has fallen behind actual economic conditions.
CNBC reported that, “The labor market is the strongest its been in years as reflected by a low 4.1 percent unemployment rate.
“The economy has grown 3 percent for two straight quarters, and could make it three in a row for the first time since 2005. And retailers may have just had their best holiday shopping season in a decade.”
Today’s facts are mixed and largely offset each other, But I believe the longer term is toward higher mortgage rates.Verify your new rate (Jan 18th, 2019)
Mortgage rates today
|Conventional 30 yr Fixed||4.122||4.133||Unchanged|
|Conventional 15 yr Fixed||3.625||3.644||-0.04%|
|Conventional 5 yr ARM||3.688||3.941||-0.02%|
|30 year fixed FHA||3.875||4.876||-0.04%|
|15 year fixed FHA||3.25||4.198||Unchanged|
|5 year ARM FHA||3.563||4.468||Unchanged|
|30 year fixed VA||3.917||4.104||+0.24%|
|15 year fixed VA||3.438||3.748||Unchanged|
|5 year ARM VA||3.625||3.671||-0.07%|
Financial data that affect today’s mortgage rates
Most indicators are mixed, likely to offset each other unless we get some Washington, DC weirdness later. Then all bets are off.
- Major stock indexes opened slightly higher (slightly bad for mortgage rates)
- Gold prices continue their upward trajectory, rising another $3 an ounce to $1,290. (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 crept up $1 to $60 a barrel (that’s bad for mortgage interest rates. Higher energy prices play a large role in creating inflation.)
- The yield on ten-year Treasuries dropped four basis points (4/100ths of 1 percent) to 2.44 percent (good, because mortgage rates tend to follow Treasuries and this is still pretty high).
- CNNMoney’s Fear & Greed Index reversed its trend, rising two points to 65. This is NOT one case in which “greed is 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.
This is a holiday-shortened week. Here are this week’s pertinent reports:
- Wednesday also brings Pending Home Sales for November from the National Association of Realtors. Last month, the NAR reported a 3.5 percent increase. If the trend continues, rates could see upward pressure.
- Thursday brings the Weekly Jobless Claims, which is only considered important if it varies significantly from expectations. That’s because it’s known to be volatile, and only represents a week of data. More filings is bad for the economy, but relieves wage pressures and so that’s generally good for 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.
The Ten-Year Treasury Index backing away from 2.50 percent is encouraging — a psychological wall that, if broken, could send rates shooting up. I’d lock if I had anything fixed closing soon, and am comfortable with waiting is my closing is further out.
- 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 (Jan 18th, 2019)