What’s driving current mortgage rates?
Average mortgage rates today got a boost from some much stronger-than-expected economic news. ADP (a giant payroll processor in the US) reported that it added 230,000 new private sector payrolls last month.Analysts predicted only 184,000 new payrolls, and it’s a huge jump from August’s 163,000.
Investors pay attention to this non-government report because it precedes the massively-significant monthly Employment Situation report, and the ADP data is thought by many to provide clues about Friday’s report. As it indicates that the economy may be stronger than thought, that’s bad news for mortgage rates.
ISM non-manufacturing index (predicted: 58.4)
|Conventional 30 yr Fixed||4.875||4.886||Unchanged|
|Conventional 15 yr Fixed||4.497||4.516||Unchanged|
|Conventional 5 yr ARM||4.438||4.899||+0.01%|
|30 year fixed FHA||4.583||5.592||+0.04%|
|15 year fixed FHA||3.75||4.701||-0.36%|
|5 year ARM FHA||4.0||5.348||-0.1%|
|30 year fixed VA||4.667||4.862||+0.04%|
|15 year fixed VA||3.938||4.252||Unchanged|
|5 year ARM VA||4.375||4.694||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
This morning’s financial news today is neutral-to-bad news for mortgage rates, much of it pointing to inflation.
- Major stock indexes opened higher (bad for rates)
- Gold prices fell $7 to $1,202 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 rose remain at $75 a barrel (neutral for today’s mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries increased a staggering 7 basis points (7/100ths of 1 percent) to 3.12 percent. That is bad for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index rose 9 points to a reading of 54 (out of a possible 100). That level is the “greedy” side of “neutral,” and since it moved in a “greedier” direction, that’s 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
Mortgage rates are trending higher overall. However, there have been brief periods of lower interest rates — little blips on the radar. If you follow these reports closely and have some time before your loan must close, then you could be the recipient of a lucky rate drop. Stay in contact with your lender.
If you have to close soon, however, you have less time to look for these blips and could get caught on the wrong side of the up-and-down movements of rates. In that case, if you are in a 7-to-15 day tier, I recommend locking.
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
This week is pretty low on scheduled economic reporting, but rife with political turmoil right here are home. Mortgage rates are as likely to be driven by Twitter as they are by actual fundamental economic data. Here are the scheduled reports.
- Monday: ISM manufacturing index (predicted: 60.88)
- Tuesday: Nothing
- Wednesday: ADP employment (previous: 163,000), ISM non-manufacturing index (predicted: 58.4)
- Thursday: Weekly jobless claims (predicted: 210,000), Factory orders for August (predicted 1.9 percent increase)
- Friday: Employment Situation Report for September (predicted: 168,000 non-farm payrolls, 3.8 percent unemployment rate, average hourly earnings up .3 percent)
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 13th, 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.