What’s driving current mortgage rates?
Mortgage rates today are mostly unchanged, but some did increase over yesterday’s surprising lows. This morning’s economic releases did not have much effect.
Weekly Jobless Claims (forecast was 330,000 new claims for benefits) came in with 315,000 claims, which is better for the economy but not good for mortgage rates. That’s because less unemployment means possible upward pressure on wages.
Personal Income, Spending, and Inflation for February, (expect increases of .4%. ,2% and .2%). These turned out to be neutral because every one of them hit expectations exactly. That means their increases were already priced into mortgage rates, so they had no effect this morning.
Consumer Sentiment for March (predicted to remain at 102), did slip a little. The University of Michigan reported that its measure of consumer attitudes about the economy slipped to 101.4 at the end of March. That is good for mortgage rates.
So you can see why little happened with most rates. The news was bad, neutral and good for current mortgage rates — offsetting most movement. So we’ll want to look to financial data to get more clues about today’s mortgage rates (and tomorrow’s).Verify your new rate (Dec 12th, 2018)
Mortgage rates today
|Conventional 30 yr Fixed||4.58||4.591||Unchanged|
|Conventional 15 yr Fixed||4.083||4.102||Unchanged|
|Conventional 5 yr ARM||4.063||4.606||+0.01%|
|30 year fixed FHA||4.417||5.423||Unchanged|
|15 year fixed FHA||3.625||4.575||Unchanged|
|5 year ARM FHA||3.875||5.002||+0.06%|
|30 year fixed VA||4.458||4.651||-0.04%|
|15 year fixed VA||3.75||4.063||Unchanged|
|5 year ARM VA||4.125||4.287||+0.08%|
Financial data affecting today’s mortgage rates
Today’s early data are mixed and mostly offset each other as we wait for the most important trading day this week, Thursday.
- Major stock indexes opened slightly higher (slightly bad for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow)
- Gold prices continued their downward trend, falling another $8 an ounce to $1,323. (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 $65 a barrel (neutral for mortgage rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries remained at 2.76 percent after tumbling yesterday. This is neutral for mortgage rates because they tend to follow Treasuries
- CNNMoney’s Fear & Greed Index rose a measly 1 point to a reading of 7 (out of a possible 100). That’s an improvement, but still about as fearful it gets. 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, if what investors ear most is inflation, look out.
This week brings some pretty heavy financial reporting.
- Monday: Nothing
- Tuesday: Case-Shiller Home Price Index for January (previous month increased 6.3%) and the Consumer Confidence Index for March (expected to increase from February’s 130.8 to 131.3)
- Wednesday: Pending Home Sales for February (previous month fell by 4.7%)
- Thursday: Weekly Unemployment (forecast is 330,000 new claims for benefits), Personal Income, Spending, and Inflation for February, (expect increases of .4%. ,2% and .2%) and Consumer Sentiment for March (predicted to remain at 102)
- Friday: Nothing (Good Friday)
Rate lock recommendation
Mortgage rates today are in a very good place if you are closing on a home loan soon. We have not seen 10-year Treasuries break below the 2.80 percent barrier since early February. I personally would lock if I had a rate floating today.
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 12th, 2018)