What’s driving current mortgage rates?
This week’s unemployment claims report that showed fewer new claims than economists expected. At 233,000, it missed the 240,000 that analysts had expected — not good. Less unemployment can hurt those getting mortgages because it tends to fire up inflammation concerns and push rates higher.
Next, the Conference Board reported a slightly larger-than-expected increase by its index of leading U.S. economic indicators, indicating that they rose .6 in December instead of the anticipated .5. That is nice for the economy but less so for mortgage rates.
The Commerce Department reported that New Home Sales in December were much lower than anticipated — 625,000 instead of 680,000. That should be good for rates because less demand for mortgages means lenders have to accept lower profits to be competitive and keep a lid on mortgage pricing. It usually often also indicates an economic decline.
But (are you suffering from whiplash yet?) there is another factor. These are new home sales, and new home inventory the building industry controls inventory. Build fewer homes when the demand is up, and you get higher prices and larger profits from the homes you construct. MarketWatch says, “Keeping supply just low enough to maintain frenzied demand is a strategy that’s certainly paying off for many big publicly traded builder firms.”Verify your new rate (Nov 20th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.292||4.303||Unchanged|
|Conventional 15 yr Fixed||3.917||3.936||+0.04%|
|Conventional 5 yr ARM||3.875||4.006||+0.02%|
|30 year fixed FHA||4.083||5.086||-0.04%|
|15 year fixed FHA||3.438||4.386||Unchanged|
|5 year ARM FHA||3.813||4.566||+0.02%|
|30 year fixed VA||4.083||4.272||Unchanged|
|15 year fixed VA||3.625||3.937||Unchanged|
|5 year ARM VA||3.938||3.784||Unchanged|
Financial data that affect today’s mortgage rates
Today’s early data are mixed, pretty much offsetting each other, but not especially good for the near future of mortgage rates:
- Major stock indexes opened higher (bad for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow )
- Gold prices rose $10 an ounce to $1,360. (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 third straight day to $66 barrel (bad for mortgage rates, because higher energy prices play a large role in creating inflation).
- The yield on ten-year Treasuries fell 2 basis points (2/100th of one percent to 2.64 percent. That’s better for mortgage rates because mortgage rates tend to follow Treasuries.
- CNNMoney’s Fear & Greed Index inched down one point to 78, still at 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. 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 20th, 2018)