What’s driving current mortgage rates?
Mortgage rates today opened down slightly. Probably due to late bond price increases yesterday afternoon. Today is a good day to lock if you’re within 30 days of closing (but see caveats below).
Weekly Unemployment Claims come in just slightly lower than analysts predicted — 226,000 versus the predicted 228,000. That would be slightly bad for mortgage rates. However, this is just a weekly report, so it’s less-damaging that it might otherwise be.
Next, the National Association of Home Builders (NAHB) released its Homebuilders’ Index.This index measures builder confidence, which is loosely tied to housing growth. Rising builder confidence can point to rising mortgage rates, because it means more demand for homes, increasing prices and greater need for mortgages.Verify your new rate (Jan 18th, 2019)
Mortgage rates today
|Conventional 30 yr Fixed||4.58||4.591||+0.04%|
|Conventional 15 yr Fixed||4.125||4.144||Unchanged|
|Conventional 5 yr ARM||4.063||4.524||Unchanged|
|30 year fixed FHA||4.417||5.423||-0.04%|
|15 year fixed FHA||3.625||4.575||-0.06%|
|5 year ARM FHA||3.875||4.96||Unchanged|
|30 year fixed VA||4.5||4.694||Unchanged|
|15 year fixed VA||3.75||4.063||Unchanged|
|5 year ARM VA||4.125||4.242||-0.05%|
Financial data that affect today’s mortgage rates
Today’s early data are mixed but mostly point to higher rates.
- Major stock indexes are all up (bad for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow )
- Gold prices fell $6 to $1,319 an ounce. (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 prices remained at $61 a barrel (neutral for mortgage rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries dropped 1 basis point (1/100th of 1 percent) to 2.82 percent. This is good for mortgage rates because they tend to follow Treasuries
- CNNMoney’s Fear & Greed Index fell 5 points to a reading of 30 (out of a possible 100). That’s considered the “fear” range. 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.
This week brings several moderately important reports and a couple of important indicators.
- Monday: nothing
- Tuesday: Consumer Price Index (CPI), which measures inflation and is one of the most important reports in the month.
- Wednesday: Retail Sales, which tracks economic activity at the consumer level, and the Producer Price Index (PPI) which shows economic strength at the wholesale level.
- Thursday: Weekly Unemployment Claims come out as usual. And we’ll get the Homebuilders’ Index.
- Friday: This important day brings Housing Starts, Consumer Sentiment, and Industrial Production to wrap up the week.
Rate lock recommendation
Today’s mortgage rates are relatively flat. If you’re nearing a lock cut-off point, for example, you’re 16 days from closing and could get 15-day pricing by waiting one more day, I recommend waiting.
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 (Jan 18th, 2019)