What’s driving current mortgage rates?
Mortgage rates today opened mostly unchanged. Even though most of yesterday’s activity fueled inflationary concerns, which typically lead to higher interest rates, at least in the short term.
This morning, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell to 72, just a little worse than the 73 reading analysts expected. The NAHB index measures builder confidence in the market for new homes.
One reason for this could be the fact that builders continue to build larger homes to squeeze out profits from ever-more expensive lots, while studies show that most homebuyers want smaller houses, and want to pay less for them. This disconnect could trip builders up and change home prices if the trend gains traction.
At 2:00 PM EST, the Fed will release its Beige Book, and if it contains any surprises, rates could move. The Beige Book compiles the opinions of Federal Reserve governors about the near future of the economy and possible scheduling of interest rate changes.Verify your new rate (Nov 15th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.167||4.178||Unchanged|
|Conventional 15 yr Fixed||3.708||3.727||-0.04%|
|Conventional 5 yr ARM||3.813||3.985||Unchanged|
|30 year fixed FHA||3.917||4.918||-0.08%|
|15 year fixed FHA||3.313||4.261||Unchanged|
|5 year ARM FHA||3.688||4.516||Unchanged|
|30 year fixed VA||3.958||4.146||Unchanged|
|15 year fixed VA||3.5||3.811||Unchanged|
|5 year ARM VA||3.875||3.761||Unchanged|
Financial data that affect today’s mortgage rates
Today’s early data appear to be mostly neutral for mortgage rates, except for the fact that stocks are up. If I had an unlocked mortgage in process, I’d keep an eye on the markets and stay in contact with my lender.
- Major stock indexes opened higher, continuing this week’s trend (bad for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow )
- Gold prices rose a mere $1 an ounce to $1,336. (That is very slightly 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 remained at 2.56 percent at this morning’s opening (neutral for interest rates, because mortgage rates tend to follow Treasuries).
- CNNMoney’s Fear & Greed Index fell 6 points to 75, which is a good direction but still in “extreme greed.” That’s bad for mortgage 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 — we don’t even get any major financial reporting until Wednesday/
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.
- 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. If you can get a longer lock without paying more than .125 percent in FEES for 45 days or more than .25 percent in FEES (not the rate) for a 60-day lock, I recommend taking it.
- LOCK if closing in 7 days
- LOCK if closing in 15 days
- LOCK if closing in 30 days
- LOCK if closing in 45 days
- LOCK 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 (Nov 15th, 2018)