What’s driving current mortgage rates?
Today’s mortgage rates have not changed much — some up, some down, mostly the same. And it’s Friday, not historically the best day to lock.
That’s because lenders do tend to price higher (especially later in the day) than they would on other days with the same economic information. It’s how they protect themselves in case consumers lock later, and then something happens to drive rates up over the weekend. That’s called “tape bomb” in the industry, named after old-fashioned ticker tapes that used to track stock prices.
Today, we got a couple of economic reports that are not super-important, but they become more relevant when that’s all we have. Last quarter’s Gross Domestic Product (GDP) was Experts anticipated an increase of 3.0 percent. But we only got 2.6 percent, nice for rates but disappointing for the economy. On the flip-side, Durable Goods Orders, expected to come in with a .8 percent increase, blew away predictions with a 2.9 percent increase. Nice for the economy but bad for rates.Verify your new rate (Nov 18th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.333||4.344||+0.04%|
|Conventional 15 yr Fixed||3.875||3.894||-0.04%|
|Conventional 5 yr ARM||3.875||4.006||Unchanged|
|30 year fixed FHA||4.042||5.044||-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||Unchanged|
|5 year ARM VA||3.938||3.784||Unchanged|
Financial data that affect today’s mortgage rates
Today’s early data are mixed, that offset 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 fell $9 an ounce to $1,351. (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 remains at $66 barrel (not-great mortgage rates, because higher energy prices play a large role in creating inflation — but at least it stopped rising).
- The yield on ten-year Treasuries rose 2 basis points (2/100th of one percent to 2.66 percent, reversing yesterday’s 2 point drop. That’s worse for mortgage rates because mortgage rates tend to follow Treasuries.
- CNNMoney’s Fear & Greed Index remained at 78, still at the “extreme greed” level. That’s technically neutral because it didn’t actually move, but 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 delivers much more important economic reporting and the potential for more movement in mortgage interest
- Monday — personal income, core inflation, and consumer spending
- Tuesday — Case-Shiller Home Prices and Consumer Confidence
- Wednesday — ADP Employment and Fed announcement
- Thursday — Weekly unemployment, ISM Manufacturing Index
- Friday — Monthly employment report (most important report of the month)
If you’re not yet locked, pay careful attention next week. We’ll break down these individual reports and how they affect you next week.
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 18th, 2018)