What’s driving current mortgage rates?
Mortgage rates today are lower than yesterday across the board. That’s is a good thing. Pay attention!
Weekly Unemployment from the Labor Department came in pretty much as predicted by analysts — 229,000 new claims for benefits actual versus 225,000 predicted. Being close to expectations, the effect is minimal.
Leading Economic Indicators rose for the fifth straight month, according to The Conference Board. The gains suggest an economy with real staying power. Job markets appear strong, and consumer and business confidence continue to increase — in this case for the fifth straight month. Leading economic indicators are a group of financial data points widely considered to have predictive value of future economic strength or weakness.Verify your new rate (Dec 13th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.622||4.633||-0.04%|
|Conventional 15 yr Fixed||4.167||4.186||-0.04%|
|Conventional 5 yr ARM||4.125||4.547||Unchanged|
|30 year fixed FHA||4.417||5.423||-0.13%|
|15 year fixed FHA||3.688||4.638||-0.06%|
|5 year ARM FHA||3.875||4.959||Unchanged|
|30 year fixed VA||4.5||4.694||-0.04%|
|15 year fixed VA||3.75||4.063||-0.06%|
|5 year ARM VA||4.125||4.242||-0.09%|
Financial data that affect today’s mortgage rates
Today’s early data won’t mean much if the Fed does anything unexpected at its meeting today. However, rising oil is very bad news and will probably push rates higher.
- Major stock indexes are sharply down (good for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow)
- Gold prices increased $17 to $1,328 an ounce. (That is 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 prices remained at $64 a barrel (neutral for mortgage rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries fell massively by 10 basis points (10/100ths of 1 percent) to 2.80 percent. This is very good for mortgage rates because they tend to follow Treasuries
- CNNMoney’s Fear & Greed Index fell 7 points to a reading of 10 (out of a possible 100). That’s considered the “extreme fear” range. Moving into a more fearful state is usually bad 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 is pretty light on financial reporting.
- Monday: Nothing
- Tuesday: Nothing
- Wednesday: Existing Home Sales
- Thursday: Weekly Unemployment, Leading Economic Indicators
- Friday: Durable Goods Orders, New Home Sales
Rate lock recommendation
Today’s mortgage rates have been trending higher today but we got a break today. If you are closing within 30 days and are not a compulsive gambler, I suggest that you take the money and run.
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.
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 13th, 2018)