What’s driving current mortgage rates?
Average mortgage rates today are mostly unchanged, but there is opportunity for locking if you have been floating a 30-year or 15-year fixed-rate mortgage. Keep in mind that these are averages; your individual mortgage lender may price differently.
Retail sales (expected increase .4 percent) came in with just a .1 percent increase. That’s disappointing for stockholders, but good news for mortgage borrowers. Consumer Sentiment for September indicates how likely consumers are to make big purchases in the short-term. This highly-important report delivered bad news for mortgage rates, coming in at 100.8, well over the predicted 96.6). Industrial Production for August surprised with a .4 percent increase in production, .1 percent higher than the expected .3 percent increase (bad for mortgage rates but only of moderate importance).
|Conventional 30 yr Fixed||4.833||4.845||-0.04%|
|Conventional 15 yr Fixed||4.372||4.391||-0.08%|
|Conventional 5 yr ARM||4.438||4.867||+0.02%|
|30 year fixed FHA||4.583||5.592||Unchanged|
|15 year fixed FHA||3.75||4.701||Unchanged|
|5 year ARM FHA||4.25||5.425||Unchanged|
|30 year fixed VA||4.708||4.905||Unchanged|
|15 year fixed VA||3.875||4.189||Unchanged|
|5 year ARM VA||4.313||4.644||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 economic data are mixed, with the most important items, stocks and oil largely canceling each other out. So the effect is neutral.
- Major stock indexes opened up mixed and flat (neutral for mortgage rates)
- Gold prices fell by $7 to $1,207 an ounce. (That is bad news 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 fell $1 to $69 a barrel (good for today’s mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries increased by 4 basis points (4/100th of 1 percent) to 3.00 percent. That is bad news for borrowers because 3 percent is a big psychological barrier, and because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index increased again, this time by 1 point to 74 (out of a possible 100). That moves us into an even “greedier” state, which is bad for mortgage rates. “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
According to industry publication Mortgage News Daily, what we’re seeing today is more the result of policy enacted a year ago: “Specifically, the tax bill that materialized last September did more than anything else to precipitate the slow-motion train wreck that we’ve lived through as stakeholders in an industry that’s highly dependent on rates.”
Hence the upward trajectory of mortgage rate despite daily events that lead to small downward blips. the trick is to catch those blips and lock when you see them.
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
Friday is probably the most important day this week — it brings three influential reports. But there are other important data coming this week (Wednesday and Thursday), so keep your eyes on this column and stay in contact with your loan advisor. For all reports except unemployment claims, if the actual numbers are higher than expected numbers, rates may suffer. If they come in lower, meaning a softer economy or less inflation, rates can drop.
- Monday: Nothing
- Tuesday: Treasury auction of 3-year Notes, which is less important because they are short-term, but can indicate demand for US debt. Higher demand is good, lower demand is bad.
- Wednesday: Producer Price Index for August. It tracks prices at the manufacturing level of the economy. There will also be a Treasury auction of 10-year Notes. High demand could help rates, less demand could cause increases
- Thursday: Weekly Jobless Claims (expected: 210k), Consumer Price Index (CPI) (expected: .3 percent increase to an annualized 2.4 percent increase). This is one of the more important reports. Also, a 30-year Treasury auction, which can influence long-term rates if demand is higher or lower than expected
- ADP Employment (previous month 219k jobs added, 186k expected) and Productivity (predicted 2.9 percent increase)
Friday: Retail sales (expected increase .4 percent), Consumer Sentiment (expected reading: 96.6), and Industrial Production for August (predicted: .3 percent increase)
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 20th, 2018)
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.