What’s driving current mortgage rates?
Average mortgage rates today, except for two FHA programs, are unchanged from yesterday. This is surprising, given that Retail Sales from the Commerce Department blew away analysts’ expectations, rising .5 percent instead of the predicted .1 percent. However, this was somewhat offset by the failure of Industrial Production to live up to expectations, coming in with a .1 percent increase when experts predicted .3 percent.
In addition, the National Association of Home Builders (NAHB) survey of its members concluded that home builder confidence hit its lowest level this year, mostly due to fears related to costs resulting from the trade war. That’s bad for the industry and probably not great for consumers either.
Finally, Turkey’s embattled currency continues to destabilize foreign investment, and US Treasuries and mortgage-backed securities are still safe havens. That’s keeping our bond prices up and interest rates down.Rates Below Are Averages. Get Your Personalized Rates Here. (Nov 12th, 2018)
|Conventional 30 yr Fixed||4.75||4.761||Unchanged|
|Conventional 15 yr Fixed||4.333||4.353||Unchanged|
|Conventional 5 yr ARM||4.25||4.768||Unchanged|
|30 year fixed FHA||4.372||5.378||-0.09%|
|15 year fixed FHA||3.688||4.638||Unchanged|
|5 year ARM FHA||3.938||5.221||+0.03%|
|30 year fixed VA||4.542||4.736||Unchanged|
|15 year fixed VA||3.75||4.063||Unchanged|
|5 year ARM VA||4.25||4.538||Unchanged|
|Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.|
Financial data affecting today’s mortgage rates
Today’s data are mixed but mostly favorable for mortgage rates.
- Major stock indexes opened lower (good for mortgage rates)
- Gold prices fell $19, reversing recent gains, to $1,186 an ounce. (That is not good 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 fell dramatically by $3 to $65 a barrel (very good for mortgage rates today, because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries dropped 3 basis points (3/100th of 1 percent) to 2.85 percent. That is excellent for mortgage borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index dropped again, this time by 5 points to a reading of 45 (out of a possible 100). That is good for interest rates because the index moved into a “fearful” state. 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
If I had a loan in process and some tolerance for risk, I’d be inclined to float a day or two if I could get a better deal (15-day instead of 30-day, for instance) by doing so. But locking in today is also a good decision because today’s mortgage rates are so favorable.
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 of about .125 percent, 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
- FLOAT if closing in 30 days
- FLOAT if closing in 45 days
- FLOAT if closing in 60 days
Wednesday and Friday are the most important days for economic reporting. Anything indicating increased consumer activity or confidence is bad for mortgage interest rates. The reverse is also true. And when actual figures exceed analysts’ expectations, rates can increase. When actual numbers fall short, mortgage rates often fall.
- Monday: Nothing
- Tuesday: Nothing
- Wednesday: Retail Sales from the Commerce Department (.1 percent increase expected), Industrial Production for July (.3 percent increase predicted)
- Thursday: Weekly Jobless Claims (213k previous week) Housing Starts for July (1.274 m predicted)
- Friday: Leading Economic Indicators (previously up .5 percent), and The University of Michigan’s Consumer Sentiment for August (predicted to rise to 98.4)
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 (Nov 12th, 2018)