What’s driving current mortgage rates?
Mortgage rates today are higher across the board, as the prices of mortgage-backed securities (MBS) continue to fall. Bond prices are also in the dumps, and that, according to Mortgage News Daily, means inflation is on the radar in a big way. As this trend picks up steam, the odds of mortgage rates falling back to previous historic lows become considerably longer.
This morning brought us the Case-Shiller Home Price Index, and it contains great news — for those who already own homes. The 20-city index increased 6.3 percent in the three-month period ending in October. Surging prices are all about the limited supply of homes to buy, and rising prices lead to concerns about inflation — not good for interest rates.
Finally, The Conference Board reported that its Consumer Confidence score rose in January, after falling in December. January’s reading came in at 125.4 (1985=100), up from 123.1 from December. That’s (sorry) more bad news for mortgage rates. Rising confidence means greater spending in the future, which leads to inflation. It’s good for the economy, but most things that are good for the economy put upward pressure on interest rates.Verify your new rate (Nov 19th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.375||4.386||-0.04%|
|Conventional 15 yr Fixed||3.958||3.977||+0.04%|
|Conventional 5 yr ARM||3.938||4.029||Unchanged|
|30 year fixed FHA||4.125||5.128||Unchanged|
|15 year fixed FHA||3.563||4.512||Unchanged|
|5 year ARM FHA||3.813||4.566||+0.02%|
|30 year fixed VA||4.208||4.399||+0.08%|
|15 year fixed VA||3.688||4.0||+0.06%|
|5 year ARM VA||4.063||3.83||+0.02%|
Financial data that affect today’s mortgage rates
Today’s early data are mixed, but the most important mover of rates appears to be the likely changes at the ECB.
- Major stock indexes opened significantly lower (good for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow )
- Gold prices remained unchanged at $1,342. (That is neutral 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 fell $1 to $64 barrel (good for mortgage rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries rose 1 basis points (1/100th of one percent) to 2.71 percent, the highest it’s been in nearly three years. That’s worse for mortgage rates because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index plunged 12 points to 63. That’s a positive development because that’s almost neutral when just a few days ago the index hit “extreme greed” territory. 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 many important economic reporting and the potential for more movement in mortgage interest rates.
- 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 19th, 2018)