What’s driving current mortgage rates?
Economic reports, indicators and data are very unstable today. While investors have become unceasingly spooked, something that normally causes interest rates to fall, rates continue to rise. Probably because what’s causing investor angst is the fear of inflation.
Weekly Jobless Claims came in exactly as predicted at 230,000, making this a neutral factor. The National Association of Home Builders (NAHB) Index, also came in as expected, with no change from January’s level of 72.
But what really hit interest rates hard was the release of the Producer Price Index (PPI), which measures costs at the wholesale level. U.S. wholesale prices spiked .4 percent in February, when the previous month, there was no increase at all. The biggest reason was higher oil prices. However, the Core PPI, which strips out this volatile factor, also rose 0.4 percent. That’s not good for future mortgage rates.Verify your new rate (Dec 14th, 2018)
Mortgage rates today
Today’s mortgage rates opened sharply higher this morning.
|Conventional 30 yr Fixed||4.622||4.633||+0.04%|
|Conventional 15 yr Fixed||4.083||4.102||Unchanged|
|Conventional 5 yr ARM||4.063||4.348||+0.02%|
|30 year fixed FHA||4.458||5.465||+0.04%|
|15 year fixed FHA||3.75||4.701||+0.06%|
|5 year ARM FHA||4.0||4.917||+0.05%|
|30 year fixed VA||4.542||4.736||+0.09%|
|15 year fixed VA||3.813||4.126||+0.06%|
|5 year ARM VA||4.25||4.191||Unchanged|
Financial data that affect today’s mortgage rates
Today’s early data are favorable for mortgage rates.
- Major stock indexes opened higher this morning (bad for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow )
- Gold prices rose an astonishing $24 an ounce (up for the fourth consecutive day) to $1,355, a clear sign of market instability. (That is usually 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 $2 barrel to $60 (bad for mortgage rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries increased again, this time 4 basis points (4/100th of one percent) to 2.91 percent. That’s breaking into a new, higher range, and bad for mortgage rates because they tend to follow Treasuries.
- CNNMoney’s Fear & Greed Index edged 2 points lower, to a reading of just 11 (out of a possible 100). That’s considered the “extreme fear” range. Normally, spooked investors are good for interest rates — but only if the reason they are afraid is not potential inflation. “Fearful” investors generally push rates down as they leave the stock market and move into bonds, while “greedy” investors do the opposite. That causes rates to rise.
This 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, 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, Producer Price Index (PPI)
- Friday: Consumer Sentiment (very important) and Housing Starts
Rate lock recommendation
In general, pricing for a 30-day lock is the standard 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, the longer you lock, the higher your upfront costs. If you are weeks away from closing on your mortgage, that’s something to consider. On the flip side, if a higher rate would wipe out your mortgage approval, you’ll probably want to lock in even if it costs more.
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
- 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. 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 (Dec 14th, 2018)