What’s driving current mortgage rates?
Mortgage rates today got a break because yesterday afternoon’s Treasury auction of 30-year notes set record highs. Increased demand for these Notes helps keep prices high and yields (rates) down. And that’s good news, because the Consumer Price Index came in much higher than expected, blowing rates up.
While analysts had predicted a .1 percent increase, with the core reading an expected .2 percent rise, we got a monster — a .3 percent increase in the core CPI, which excludes volatile items like food and energy ans is considered the most reliable indicator of inflation my most experts.
Mortgage rates today
|Conventional 30 yr Fixed||4.167||4.178||Unchanged|
|Conventional 15 yr Fixed||3.792||3.811||+0.08%|
|Conventional 5 yr ARM||3.813||3.985||+0.02%|
|30 year fixed FHA||4.0||5.002||+0.04%|
|15 year fixed FHA||3.375||4.324||+0.06%|
|5 year ARM FHA||3.688||4.516||Unchanged|
|30 year fixed VA||3.958||4.146||-0.04%|
|15 year fixed VA||3.5||3.811||Unchanged|
|5 year ARM VA||3.875||3.761||+0.02%|
(Note that FHA APRs include required mortgage insurance.)
Financial data that affect today’s mortgage rates
Today’s indicators are mixed, with many offsetting others. If you can get a better rate by floating an extra day or two (to get a 15-day lock instead of a 30-day, for instance), it’s probably worth taking the chance. Rates seems to be settling into another (albeit higher) groove.
- Major stock indexes opened higher (bad for mortgage rates)
- Gold prices rose for the third straight day by $10 an ounce to $1,332. (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 $64 barrel (technically neutral for rates, but not great, because higher energy prices play a large role in creating inflation.)
- The yield on ten-year Treasuries fell 2 basis points to 2.56 percent (good for interest rates, because mortgage rates tend to follow Treasuries).
- CNNMoney’s Fear & Greed Index rose another 3 points to 78, 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.
Yet another holiday-shortened week (MLK day has many government and financial employees off on the 15th) can cause all sorts of fun for investors. Lenders typically price more conservatively on Fridays going into these occasions in case anything occurs over the weekend that affects rates while the institutions are closed.
In addition. lower trading volume can increase the effects that some reports or global events have because there are fewer investors to act upon them — increasing volatility in the market. Hang in there.
- Until Wednesday, we got nothin’. Then, the Fed will release its Beige Book, notes about the opinions of its governors about the near future of the economy and possible future rate changes. The Homebuilders Index also comes in that day, providing builders’ opinions about their near-term business.
- Thursday brings weekly unemployment figures and Housing Starts for December.
- Friday wraps things up with the University of Michigan’s Consumer Sentiment for January. Analysts have forecast a reading of 97, up from last month’s 95.9. Anything lower would be 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. 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)