What’s driving current mortgage rates?
Mortgage rates today opened nearly unchanged. We did get two scheduled reports.
ADP Employment for March, moderately-important because many believe that it predicts what Friday’s Employment Situation Report will show. The payroll processing company added 241,000 new payrolls, much more than the 200,000 expected by analysts. That’s not good for rates because more employment puts upward pressure on rates.Rates Below Are Averages. Get Your Personalized Rates Here. (Jan 16th, 2019)
|Conventional 30 yr Fixed||4.58||4.591||Unchanged|
|Conventional 15 yr Fixed||4.083||4.102||Unchanged|
|Conventional 5 yr ARM||4.063||4.599||Unchanged|
|30 year fixed FHA||4.417||5.423||-0.04%|
|15 year fixed FHA||3.625||4.575||Unchanged|
|5 year ARM FHA||3.875||4.995||Unchanged|
|30 year fixed VA||4.458||4.651||-0.04%|
|15 year fixed VA||3.75||4.063||Unchanged|
|5 year ARM VA||4.0||4.235||Unchanged|
Financial data affecting today’s mortgage rates
Factory Orders for February increased by 1.2 percent, less than the 1.7 percent economists forecast, and that’s good for rates. The ISM Non-manufacturing Index, which measures economic growth at the retail level, came in nearly as expected at 58.8. That’s neutral for interest rates.
- Major stock indexes opened down across the board mostly because of new Chinese sanctions against the US (good for rates, because rising stocks typically take interest rates with them — making it more expensive to borrow)
- Gold prices rose by $8 to $1,345 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 dropped $2 to $62 a barrel (good for mortgage rates, because higher energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries remains unchanged at 2.77 percent. This is neutral for mortgage rates because they tend to follow Treasuries
- CNNMoney’s Fear & Greed Index opened unchanged with a reading of 8 (out of a possible 100). That’s a neutral movement, but still in the “extreme 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’s reporting is pretty low-level until we get to Friday, the most important day of the month. We will update with analysts’ predictions as they come in.
- Monday: nothing
- Tuesday: nothing
- Wednesday: ADP Employment for March (previous month was 235,000 jobs added), Factory Orders for February (previous month was down 1.4 percent), ISM Non-manufacturing Index (expected to hit 59 percent)
- Thursday: Weekly Unemployment Claims (analysts predict 225,000 claims — more is better for rates, fewer is worse)
- Friday: March Non-farm payrolls (previous month was 313,000, economists expect a huge drop to 175,000), March Unemployment Rate (experts predicting a .1 percent drop to 4.0 percent), and Average Hourly Earnings (analysts anticipate a .2 percent increase).
Rate lock recommendation
There appears to be little upward pressure on current mortgage rates. And tomorrow’s weekly unemployment report will almost certainly be ignored as investors wait for Friday’s much more important release. If you can almost qualify for a shorter lock (say you are 17 days from closing and could save .125 percent by locking for 15 days instead of 30), it’s probably safe to wait a couple of days.
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 (Jan 16th, 2019)