What’s driving current mortgage rates?
Mortgage rates today are up sharply in the wake of January’s Monthly Employment Situation Report from the US Department of Labor. Not only did jobs and wages rise, they increased more than analysts had predicted. It’s that variation from what the experts predict that causes mortgage interest rates to change.
- Non-farm payrolls increased by 200,000, well over December’s 160,000 and also exceeding expert predictions of 190,000
- The unemployment rate remained steady at 4.1 percent
- Average hourly earnings increased by 0.3 percent month-over-month, beating expectations of 0.2 percent
- Consumer sentiment increased from December’s 94.4 to 95.7, beating the anticipated reading of 95.0
- December factory orders came in higher as well as 1.7 percent, exceeding the predicted 1.6 percent
Expected changes are already priced into lending costs, but when something extra pops into the equation, lenders react quickly to protect themselves. In addition, it’s Friday, traditionally not the best day to lock in mortgage rates.Verify your new rate (Nov 19th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.5||4.511||+0.08%|
|Conventional 15 yr Fixed||4.083||4.102||+0.13%|
|Conventional 5 yr ARM||3.938||4.303||Unchanged|
|30 year fixed FHA||4.288||5.293||+0.12%|
|15 year fixed FHA||3.625||4.575||+0.06%|
|5 year ARM FHA||3.938||4.892||+0.3%|
|30 year fixed VA||4.292||4.483||+0.08%|
|15 year fixed VA||3.75||4.063||+0.06%|
|5 year ARM VA||4.0||4.1||+0.27%|
Financial data that affect today’s mortgage rates
Today’s early data mostly point to increasing mortgage rates.
- Major stock indexes opened down (good for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow )
- Gold prices fell $12 an ounce to $1,333. (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 is unchanged at $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 2.84 percent, ten basis points higher at 2.84 percent, and the highest it’s been in three years. That’s awful for mortgage rates because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index dropped 1 points to 58. 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.
Next week, we can catch our breath; there are very few pertinent economic reports scheduled. In fact, other than a few Treasury auctions and Thursday’s weekly unemployment report, we’ll be relying almost entirely on financial data (like the list above), global financial and political news, and those 3:00 am tweets from the White House.
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. In a rising rate environment, the decision to lock or float becomes complicated. Obviously, if you know rates are rising, you want to lock in as soon as possible.
However, longer locks cost more, and you usually pay those fees upfront. When shopping for a mortgage, make sure that every quote you receive includes the lock period that you want. There is no point in comparing the rate and costs of one lender’s 15-day lock with another’s 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)