What’s driving current mortgage rates?
Mortgage rates today fell dramatically in a turbulent market. This morning, we got several moderate-to-important reports to digest, and their results present a mixed bag where mortgage rates are concerned.
In addition, market participants are anxiously waiting for Fed Chair Jerome Powell’s testimony before Congress today — he has previously expressed the need to take inflation-preventing action (higher rates), and that has investors concerned.
Weekly unemployment claims (moderate importance) came in lower than expected, with 210,000 instead of the anticipated 226,000. That’s bad for mortgage rates, because it indicates that the labor economy was stronger than analysts thought, and that can put upward pressure on wages (inflation).
Next, we have a trio: personal income (major importance), consumer spending (major importance), the core inflation rate (major importance).
Personal income was also unfavorable for mortgage rates, increasing by .4 percent when experts predicted .3 percent. However, consumers are not spending their gains — consumer spending increased .2 percent instead of the expected .3 percent. That’s good for rates because less spending tens to keep prices lower.
The core inflation came in as expected (neutral for mortgage rates) at .3 percent.
ISM manufacturing index (moderate importance), which measures economic activity at the manufacturing level came in higher than expected at 60.8, indicating that US manufacturing has expanded faster than any time since 2004. That signifies economic heat and is bad for mortgage rates.Verify your new rate (Dec 11th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.583||4.594||-0.08%|
|Conventional 15 yr Fixed||4.167||4.186||-0.04%|
|Conventional 5 yr ARM||4.0||4.325||Unchanged|
|30 year fixed FHA||4.458||5.465||-0.08%|
|15 year fixed FHA||3.75||4.701||Unchanged|
|5 year ARM FHA||3.875||4.867||Unchanged|
|30 year fixed VA||4.455||4.648||-0.09%|
|15 year fixed VA||3.813||4.126||-0.06%|
|5 year ARM VA||4.25||4.191||-0.05%|
Financial data that affect today’s mortgage rates
Today’s early data, on the whole, are favorable for mortgage rates.
- Major stock indexes are down across the board this morning (good for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow )
- Gold prices fell for the third straight day — this time by $11 an ounce to $1,309. (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 for the second straight day by $3 to $60 a barrel (very good for mortgage rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries decreased by 4 basis points (4/100ths of 1 percent) to 2.84 percent. This is very good for mortgage rates because they tend to follow Treasuries
- CNNMoney’s Fear & Greed Index dropped 5 points to a reading of 12 (out of a possible 100). That’s considered the “extreme fear” range. And moving into a more fearful state is usually good for rates. “Fearful” investors generally push bond prices up (and interest rates down) as they leave the stock market and move into bonds, while “greedy” investors do the opposite. However, that won’t be the case if the reason for the fear is potential inflation
This week brings more economic reporting and guidance than we had last week, with Thursday being the biggest day for news. Here’s a quick rundown:
- Monday: New home sales for January (minor importance)
- Tuesday: Durable goods orders for January (moderate importance), Case-Shiller home prices for December (moderate importance), and Consumer Confidence for February (major importance)
- Wednesday: Pending home sales for January (moderate importance)
- Thursday: Weekly unemployment claims (moderate importance), personal income (major importance), consumer spending (major importance), the core inflation rate (major importance), ISM manufacturing index (moderate importance)
- Friday: Consumer sentiment for February (major importance)
Rate lock recommendation
Today is a great time to lock in and take advantage of what is likely a short-lived blip.
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 11th, 2018)