What’s driving current mortgage rates?
Mortgage rates today are unchanged, again. Individual lenders’ rates are varying, but the averages we report have not. Today’s economic reports are not important enough to move the needle unless their results are very surprising.
May Durable Goods Orders, which analysts expected to decline by 1.3 percent, backed off only .5 percent. Pending Home Sales for May fell .5 percent. Both results are good for rates. Today’s Treasury auction (5 year Notes) may change things up. We will report the results when they come in.Rates Below Are Averages. Get Your Personalized Rates Here. (Sep 21st, 2018)
|Conventional 30 yr Fixed||4.75||4.761||Unchanged|
|Conventional 15 yr Fixed||4.333||4.353||Unchanged|
|Conventional 5 yr ARM||4.313||4.753||Unchanged|
|30 year fixed FHA||4.458||5.465||Unchanged|
|15 year fixed FHA||3.75||4.701||Unchanged|
|5 year ARM FHA||4.188||5.255||Unchanged|
|30 year fixed VA||4.542||4.736||Unchanged|
|15 year fixed VA||3.75||4.063||Unchanged|
|5 year ARM VA||4.25||4.468||Unchanged|
Financial data affecting today’s mortgage rates
This morning’s data overall are pretty bad for rates, especially the oil prices. I’d expect rates to react by increasing, and if you can lock before that happens, I suggest that you do.
- Major stock indexes opened higher (bad for mortgage rates)
- Gold prices fell $5 to $1,255 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 jumped $4 to $73 a barrel (that’s very bad for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries fell 4 basis points to 2.85 percent. That is quite good (and the only good news) for mortgage rates because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index dropped 6 points to 44 (out of a possible 100). That is a more fearful direction, into the “neutral” range. That’s slightly good for rates. “Fearful” investors 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 offers a few pertinent economic releases in addition to a couple of Treasury auctions. Most of the releases we get won’t be of major importance. The trade war news and overseas response will likely drive rates more than these reports.
- Monday: New Home Sales report for May (forecast: 667,000 sales)
- Tuesday: April Case-Shiller Home Price Index Consumer Confidence Index for June (forecast: 128)
- Wednesday: May Durable Goods Orders (forecast: -1.4%), Pending Home Sales for May, Treasury auction (5 year Notes)
- Thursday: Weekly Jobless Claims (previous: 218,000), Treasury auction (7 year Notes)
- Friday: Personal Income, Consumer Spending, and Core Inflation for May, (forecast: increase by .4%, .4% and .2%, respectively), Consumer Sentiment for June (forecast: 99.3)
Rate lock recommendation
Rates are trending higher over the long-term, with occasional dips. Today’s economic indicators are mostly unfavorable, so if your rate has not increased or even dropped this morning, I’d grab it.
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. If you can get a better rate (say, a .125 percent lower rate) by waiting a couple of days to get a 15-day lock instead of a 30, it’s probably safe to consider.
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. I recommend:
- 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 (Sep 21st, 2018)