What’s driving current mortgage rates?
Mortgage rates today changed very little overall (keep in mind that these are averages, and individual lenders and programs can and do move daily or even more often).
Housing Starts for June (predicted 1.303 million) came in much lower than expected (actual starts were 1.173 million), according to the Commerce Department. That’s fewer homes being built, and fewer permits were also granted. That indicates less demand for loans and possibly lower rates, but lower supply can mean higher prices.Rates Below Are Averages. Get Your Personalized Rates Here. (Dec 10th, 2018)
|Conventional 30 yr Fixed||4.625||4.636||Unchanged|
|Conventional 15 yr Fixed||4.167||4.186||Unchanged|
|Conventional 5 yr ARM||4.25||4.737||Unchanged|
|30 year fixed FHA||4.372||5.378||Unchanged|
|15 year fixed FHA||3.625||4.575||Unchanged|
|5 year ARM FHA||3.938||5.166||Unchanged|
|30 year fixed VA||4.5||4.694||-0.04%|
|15 year fixed VA||3.75||4.063||Unchanged|
|5 year ARM VA||4.25||4.481||Unchanged|
Financial data affecting today’s mortgage rates
The most important indicators either did not move at all or went slightly negative (gold) for rates.
- Major stock indexes opened mixed but flat (neutral for mortgage rates)
- Gold prices fell $8 to $1,224 an ounce. (That is bad for rates because the change is so small. 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 $67 a barrel (that’s neutral for mortgage rates today, and nice to have dropped through the $70 threshold — an improvement long-term because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries did not move from yesterday’s 2.86 percent. That is neutral for mortgage borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index increased 10 points to 56 (out of a possible 100). That is moving from neutral to greedy.” Normally, “greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite
This week offers a few pertinent economic releases. Rates are unlikely to move much unless something political explodes (figuratively, of course).
- Monday: Retail Sales report for June is not one of the more important reports, but does indicate consumer activity. More is bad for mortgage rates, less is good.
- Tuesday: July Home builder’s Index (previous month was 68, higher numbers mean more building activity and rates), Industrial Production for June (forecast is .6 percent increase)
- Wednesday: Housing Starts for June (predicted 1.03 million).
- Thursday: Weekly Jobless Claims (experts predict 224,000), we also get the Leading Economic Indicators (last months increased by .2 percent. More is worse for rates, less is better.) The Fed also releases its Beige Book, which may provide insight into the timing and amount of future rate changes.
- Friday: Nothing
Rate lock recommendation
If I were thinking short-term (next week or so), I’d lock to be safe (Treasuries are rising). But if I had some room, I’d be more optimistic (oil prices are falling).
However, our economy has resembled a pin-ball randomly whacked about by crazy speeches, real and perceived political slights, and trade war fear. If you need a certain rate to qualify, you may not wish to gamble.
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 (Dec 10th, 2018)