What’s driving current mortgage rates?
Mortgage rates today actually caught a break, thanks to high demand for 2-year Notes at yesterday’s Treasury auction. Normally, demand for short-term Treasury Notes does not help that of long-term Notes, the ones that affect mortgage rates. But this time, long-term MBS (mortgage-backed securities), which pretty much track Treasuries, did not suffer, and that’s encouraging.
This morning also brought good news in the form of lower home sales, according to the National Association of Realtors. That’s doubly helpful — an indication of possibly a less-healthy economy than expected (which keeps inflation at bay), and less demand for home loans due to fewer sales. Less demand equals less upward pressure on loan costs.Verify your new rate (Nov 15th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.292||4.303||Unchanged|
|Conventional 15 yr Fixed||3.875||3.894||Unchanged|
|Conventional 5 yr ARM||3.813||3.985||Unchanged|
|30 year fixed FHA||4.125||5.128||+0.04%|
|15 year fixed FHA||3.438||4.386||Unchanged|
|5 year ARM FHA||3.75||4.541||-0.02%|
|30 year fixed VA||4.083||4.272||Unchanged|
|15 year fixed VA||3.625||3.937||+0.06%|
|5 year ARM VA||3.938||3.784||-0.02%|
Financial data that affect today’s mortgage rates
Today’s early data are mixed, that offsets each other, but not especially good for the near future of mortgage rates:
- Major stock indexes opened mixed but slightly lower pretty much a neutral thing (just slightly good for rates, because falling stocks typically take interest rates with them — making it less expensive to borrow )
- Gold prices rose $13 an ounce to $1,350. (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 went up $1 for the second straight day to $65 barrel (bad for mortgage rates, because higher energy prices play a large role in creating inflation).
- The yield on ten-year Treasuries rose 3 basis points (3/100th of one percent to 2.66 percent. That’s bad for mortgage rates because mortgage rates tend to follow Treasuries.
- CNNMoney’s Fear & Greed Index inched upward one more point to 79, the “extreme greed” level. 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.
This week brings very little financial reporting until later in the week. However, all eyes will be on Washington to see if they can get the government running or not.
- Monday — nothing
- Tuesday — nothing
- Wednesday — Existing home sales from the National Association of Realtors (NAR)
- Thursday — Weekly unemployment claims, new home sales, and Leading Economic Indicators
- Friday — Gross Domestic Product (GDP), durable goods orders
None of these reports, by themselves, have the ability to move markets that much. However, if they move in such a way as to create a trend, that’s a different story. And we will follow that story for you, so stay tuned.
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. Keep in mind that longer locks can cost at least .125 percent in FEES for 45 days or .25 percent in FEES (not the rate) for a 60-day lock.
- 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 now 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. 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)