What’s driving current mortgage rates?
Yesterday’s Treasury auction of 10-year Notes brought surprisingly good news to mortgage borrowers and lenders. Demand was unexpectedly high, pushing prices of bonds and mortgage-backed securities (MBS) higher. When prices for these investments rise, interest rates fall. Stock prices and Treasury yields both fell as the afternoon wore on. But will that trend continue today?
This morning, we got the weekly unemployment data, which indicates the number of claims for benefits filed last week. Expected to come in at 248,000, the actual figure was 261,000. That could push rates down, but it takes a pretty large variation from expectations to change rates, because this is just a weekly report.
In addition, the Bureau of Labor Statistics (BLS) released its Producer Price Index for December, which indicates inflationary pressure at the manufacturing level. It was expected to increase by .2 percent, but we actually got a .1 percent decrease, which is good for mortgage rates.
Finally, we’ll get another Treasury auction later today, this time for 30-year Notes. If demand continues to rise for US debt, that helps keep prices high and rates low. We’ll get those results early this afternoon.Verify your new rate (Dec 13th, 2018)
Mortgage rates today
(Note that FHA APRs include required mortgage insurance.)
|Conventional 30 yr Fixed||4.167||4.178||Unchanged|
|Conventional 15 yr Fixed||3.708||3.727||-0.04%|
|Conventional 5 yr ARM||3.75||3.962||-0.02%|
|30 year fixed FHA||3.958||4.96||Unchanged|
|15 year fixed FHA||3.313||4.261||-0.06%|
|5 year ARM FHA||3.688||4.516||+0.02%|
|30 year fixed VA||4.0||4.188||Unchanged|
|15 year fixed VA||3.5||3.811||Unchanged|
|5 year ARM VA||3.813||3.739||Unchanged|
Financial data that affect today’s mortgage rates
Today’s indicators are mixed, with many offsetting others. The main worry, rate-wise, is probably the continuing increase in oil prices. That causes costs to rise at every stage in the production and delivery of goods, which can push costs and interest rates up.
- Major stock indexes opened slightly higher (bad for mortgage rates)
- Gold prices rose for the second straight day by $9 an ounce to $1,322. (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 rose $2 to $64 barrel (that’s very bad for rates, because higher energy prices play a large role in creating inflation.)
- The yield on ten-year Treasuries remains at 2.58 percent (neutral for interest rates, because mortgage rates tend to follow Treasuries).
- CNNMoney’s Fear & Greed Index rose another 3 points to 75, bordering on “extreme greed.” That’s not great for rates, because in this case, greed is NOT 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 week is extremely slow for economic reporting that involves mortgage rates. There is nothing of any importance until Thursday, when we get the weekly unemployment numbers, and Friday, when we get the CPI (Consumer Price Index) for December.
For the other days, mortgage interest rates may depend more on global economic and political events, as well as random Twitter emanations from the White House. On Wednesday, we do get a Treasury auction of ten-year Notes, followed by a 30-year auction on Thursday. These can be important, because demand (much of it from overseas) for these safe vehicles keeps bond prices high and rates low. Conversely, soft demand causes bond prices to drop, and yields (rates) to rise.
- Friday: Consumer Price Index (CPI), expected to increase by .1 percent. Higher is bad for rates, a lower change or negative change would be good.
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. If you need to hit a certain rate to qualify or make a refinance work, and you can get that rate today, I recommend grabbing it.
- 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
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 (Dec 13th, 2018)