What’s driving current mortgage rates?
Mortgage rates today opened mostly higher. That’s not unexpected, considering the data we got yesterday. Most of that indicted increasing rates and I recommended locking in for that reason.
At 2:00 PM EST, yesterday, the Fed released its Beige Book, which depicted a fairly rosy (sorry) vision of today’s economy. In a nutshell, our economy (and, unfortunately, inflation) expanded moderately between November and year end. Wages are trending upward, and several regions reported increasing construction, manufacturing, and transportation costs.
Today, we got the weekly unemployment claims, which came in much lower than expected at 220,000. Analysts had predicted 250,000. That’s good for workers, bad for interest rates. On the flip side, housing starts, according to the Census Department, came in nearly 100,000 fewer than expected at 1.192 million. That’s less good for the economy, but better for rates.Verify your new rate (Nov 18th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.228||4.239||+0.04%|
|Conventional 15 yr Fixed||3.833||3.852||+0.13%|
|Conventional 5 yr ARM||3.875||4.006||+0.02%|
|30 year fixed FHA||3.958||4.96||+0.04%|
|15 year fixed FHA||3.438||4.386||+0.13%|
|5 year ARM FHA||3.75||4.541||+0.03%|
|30 year fixed VA||4.0||4.188||+0.04%|
|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 or bad for mortgage rates. Lenders are already responding with price increases.
- Major stock indexes opened mixed but down overall (good for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow )
- Gold prices fell $8 an ounce to $1,328. (That is bad 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 spiked 5 basis points to 2.61 percent at this morning’s opening (quite bad for interest rates, because mortgage rates tend to follow Treasuries).
- CNNMoney’s Fear & Greed Index fell 3 points to 72, which is a good direction, from “extreme greed” to plain old “greed.” When it comes to mortgage rates, 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.
- 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 18th, 2018)