What’s driving current mortgage rates?
Mortgage rates today changed very little from yesterday’s, probably because the two economic reports we got today are not considered the most important. In addition, the actual numbers matched forecasts, so their effect was already priced into current mortgage rates.
Weekly Jobless Claims came in with 218,000 new claims, slightly better than the 220,000 expected, and Factory orders for June increased .7 percent, exactly as predicted by analysts.Rates Below Are Averages. Get Your Personalized Rates Here. (Dec 12th, 2018)
|Conventional 30 yr Fixed||4.792||4.803||-0.04%|
|Conventional 15 yr Fixed||4.413||4.433||Unchanged|
|Conventional 5 yr ARM||4.375||4.814||+0.02%|
|30 year fixed FHA||4.5||5.507||+0.04%|
|15 year fixed FHA||3.75||4.701||Unchanged|
|5 year ARM FHA||4.188||5.327||Unchanged|
|30 year fixed VA||4.708||4.905||Unchanged|
|15 year fixed VA||3.813||4.126||Unchanged|
|5 year ARM VA||4.313||4.569||Unchanged|
Financial data affecting today’s mortgage rates
Indicators this morning are more favorable for interest rates than they were yesterday.
- Major stock indexes opened mixed and flat (neutral for mortgage rates)
- Gold prices fell $4 to $1,223 an ounce. (That is slightly bad for 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 reversed yesterday’s decrease and moved up $1 to $69 a barrel (that’s worse for mortgage rates today because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries fell 2 basis points (2/100th of 1 percent) to 2.99 percent. That is good for mortgage borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index slipped 2 points to a reading of 65 (out of a possible 100). That is a small improvement for interest rates, but we remain firmly at the “greedy” level. 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
Rate lock recommendation
Mortgage rates are trending higher day-by-day. And historically, trade wars don’t help.
In general, pricing for a 30-day lock is the standard most lenders will (should) quote you. The 15-day or 7-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. I recommend:
- LOCK if closing in 7 days
- LOCK if closing in 15 days
- LOCK if closing in 30 days
- LOCK if closing in 45 days
- LOCK if closing in 60 days
This week is seriously busy for economic reporting, with Tuesday and Friday being the most important days.
- Monday: Pending Home Sales for June from The National Association of Realtors is less important but does indicate demand for mortgages. The previous month’s sales fell .5 percent
- Tuesday: Consumer spending, Personal income, the Core inflation rate, the Case-Shiller home price index for May and The Conference Board’s Consumer Confidence Index for July
- Wednesday: ADP employment (often seen as a predictor for Friday’s Employment Situation Report), the report from this payroll-processing giant tracks new hires in the US. The Fed will also make an announcement
- Thursday: Weekly Jobless Claims (not very important but more unemployment is better for rates, less is worse) and Factory orders for June (previous month increased .4 percent)
- Friday: The most important, the Monthly employment situation report for July shows the number of jobs created and the unemployment rate. What’s better for the economy (more jobs, less unemployment) is actually bad for mortgage rates. If employment and wages fall, rates tend to follow. The reverse is also true.
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)