What’s driving current mortgage rates?
Mortgage rates today are fairly stable, and there have been no important economic releases. The week was very sparse, data-wise, but full of activity. Stock investors and bond investors endured a roller-coaster of a week, and rates rose and fell with every rumor, tweet or global political event.
Things are fairly stable right now, and mortgage applicants can probably exhale. Today’s data point to stable or even falling rates, and Friday is not historically the best day to lock, anyway.Verify your new rate (Oct 30th, 2020)
Mortgage rates today
|Conventional 30 yr Fixed||4.58||4.591||+0.08%|
|Conventional 15 yr Fixed||4.083||4.102||Unchanged|
|Conventional 5 yr ARM||3.938||4.303||Unchanged|
|30 year fixed FHA||4.372||5.378||+0.04%|
|15 year fixed FHA||3.688||4.638||Unchanged|
|5 year ARM FHA||3.813||4.843||-0.05%|
|30 year fixed VA||4.455||4.648||Unchanged|
|15 year fixed VA||3.813||4.126||Unchanged|
|5 year ARM VA||4.25||4.191||Unchanged|
Financial data that affect today’s mortgage rates
Today’s early data do not point to a definite direction regarding mortgage rates. Some factors offset others, but the important factors in my opinion are the drop in Treasuries and oil prices. Both show that mortgage rates are not increasing day-by-day and that there is no reason to panic and lock if your closing is weeks away.
- Major stock indexes opened higher across the board but flattened out later this morning (neutral for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow )
- Gold prices fell $4 an ounce to $1,315, continuing this week’s downward trend. (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 fell $1 to $60 barrel (good for mortgage rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries dropped 2 basis points (2/100ths of one percent to 2.85 percent. That’s better for mortgage rates because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index fell another 6 points to a level of 8. That’s the lowest I have seen it, and in the “extreme fear” range. That’s good for future 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.
It appears that market participants are very nervous right now, which would normally be good for interest rates. However, that fear extends beyond stocks, possibly to inflation. And if you are too scared to buy stocks and too scared to buy bonds, you probably aren’t doing much. And so we wait.
Mortgage rates today remain very favorable for anyone considering homeownership. Residential financing is still affordable.
Next week will bring a few reports of interest to anyone floating a mortgage rate. Here are the most pertinent:
- Wednesday: The Consumer Price Index (CPI), a highly-important indicator of inflation, and January’s Retail Sales report, which tracks spending activity at the consumer level. If they exceed predicted levels (which we will have next week), mortgage rates could rise. If actual figures are lower than predicted, rates could fall.
- Thursday: Weekly Unemployment Claims, National Association of Home Builders (NAHB) Index
- Friday: Consumer Sentiment (very important) and Housing Starts
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. This week is so volatile, however, you might snag a better deal if you jump in when stocks are down and lenders improve pricing. Just understand that these things move very quickly when participants are nervous — and they are.
If you’re still floating, stay in close contact with your lender, and keep an eye on markets.
- 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. This illustration from Mortgage News Daily shows how rising stocks tend to pull interest rates with them.
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 (Oct 30th, 2020)