What’s driving current mortgage rates?
Mortgage rates today rose after two releases. First, the weekly unemployment claims report came in with 230,000 claims, fewer than the expected 240,000. This is bad for mortgage rates because it means employment is in a better state than previously thought.
However, tomorrow’s Monthly Employment Situation Report from the Labor Department is the biggest and most important thing mortgage-watchers get all month. This little weekly thing pales in comparison and is generally not considered highly important. Lenders may be pricing higher preemptively because some believe that the monthly will show an improvement in jobs, which would be good for the economy but very bad for rates.
In addition, we got the ISM Manufacturing Index, another report of modest importance, mostly because it can vary a lot, but isn’t always highly predictive. Analysts expected it to drop from December’s 59.7 to 58.6. The Index actually exceeded expectations with a higher reading, 59.1. Again, an indicator that’s bad for mortgage rates, not influential itself but probably more important as it echoes the unemployment implications.Verify your new rate (Nov 15th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.417||4.428||+0.04%|
|Conventional 15 yr Fixed||3.958||3.977||Unchanged|
|Conventional 5 yr ARM||3.938||4.303||+0.27%|
|30 year fixed FHA||4.167||5.17||+0.04%|
|15 year fixed FHA||3.563||4.512||+0.06%|
|5 year ARM FHA||3.875||4.591||+0.05%|
|30 year fixed VA||4.208||4.399||+0.04%|
|15 year fixed VA||3.688||4.0||+0.06%|
|5 year ARM VA||4.063||3.83||Unchanged|
Financial data that affect today’s mortgage rates
Today’s early data mostly point to increasing mortgage rates.
- Major stock indexes opened slightly higher (slightly bad for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow )
- Gold prices rose $4 an ounce to $1,345. (That is slightly 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 rose $1 to $65 barrel (neutral for mortgage rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries remained at 2.74 percent, the highest it’s been in nearly three years. That’s still neutral for mortgage rates because mortgage rates tend to follow Treasuries and there was no change
- CNNMoney’s Fear & Greed Index dropped 3 points to 59. That’s a positive development because that’s considered nearly 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 this week. Stay in contact with your lender, because rates will likely be volatile. Fasten your seatbelts.
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’re closing soon, didn’t lock yesterday, and you can’t afford a rate increase if tomorrow’s Employment Report comes in better than expected, you should probably suck it up and lock.
Otherwise, you might be willing to gamble if you have more time and more tolerance for risk. Today, I am going to recommend locking to those with little time and a lot to lose and floating to everyone else.
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
- FLOAT 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 15th, 2018)