What’s driving current mortgage rates?
Average mortgage rates today are as inconsistent as a bi-polar rabbit hopped-up on carrot juice. September’s Producer Price Index (PPI), which measures inflationary pressure at the wholesale sector of the economy, provided no guidance and no surprises. Analysts expected a .2 percent increase, and that’s what they got. No surprises equal no influence on mortgage rates.
UPDATE: Treasury auction received weak demand, pushing yields (rates) to their highest since 2011. EXPECT RATES TO RISE TOMORROW OR THIS AFTERNOON, CONSIDER LOCKING IF YOU ARE CLOSING SOON.
However, the Treasury will auction off 10-Year Notes today, ending at 1 PM EDT, and the results of that sale could really move the needle. High demand could push rates down, while a tepid response from investors could cause bond prices to fall and yields (rates) to rise. We could be in for a bumpy afternoon. Watch here for an update.
|Conventional 30 yr Fixed||5.125||5.136||Unchanged|
|Conventional 15 yr Fixed||4.625||4.644||Unchanged|
|Conventional 5 yr ARM||4.563||4.969||-0.02%|
|30 year fixed FHA||4.5||5.495||-0.35%|
|15 year fixed FHA||4.0||4.953||+0.13%|
|5 year ARM FHA||4.313||5.503||+0.08%|
|30 year fixed VA||4.917||5.115||-0.04%|
|15 year fixed VA||4.125||4.441||Unchanged|
|5 year ARM VA||4.5||4.771||+0.05%|
|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 economy this morning is pretty neutral. Like a student driver with a manual transmission who can’t start the car.
- Major stock indexes opened lower (good for rates)
- Gold prices rose $1 to $1,191 an ounce. (That is a small change, neutral 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 are still at $74 a barrel (neutral — sensing a theme here? Because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries is still 3.22 percent. That’s neutral (yawn) for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index fell another 9 points from 25 to 16, “extreme fear.” Tariffs are scaring people witless — to get this in perspective, a month ago the index was at 56 (“greed” and a year ago at 85 (“extreme greed”). When it comes to rates, greed, to paraphrase Wall Street’s Gordon Gekko, is not good. “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. Analysis of today’s figure indicates that increasing numbers of investors are betting against the market, expecting a fall. That’s good for rates.
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-30 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 likely to be less driven by scheduled economic reports following last week’s bombshell of the monthly Employment Situation report. But there is always politics to throw monkey wrenches in our best-laid plans. Stay in contact with your lender and keep one eye on the markets if closing soon.
- Monday: Nothing
- Tuesday: Nothing
- Wednesday: Producer Price Index (PPI), which measures inflationary pressure at the wholesale sector of the economy. Price increases there eventually get passed on to the rest of us, so it’s predictive in the long-term. Analysts expect a .2 percent increase.
- Thursday: Weekly jobless claims (predicted: 205,000), and the more-important Consumer Price Index (CPI), which measure inflationary pressures NOW and at the consumer level. Because consumer activity drives two-thirds of the US economy, this is considered an important event. Experts predict a .2 percent increase; more would be bad for rates, less would be good.
- Friday: The University of Michigan’s Consumer Confidence Index (previous month’s reading was 100.9) is an important factor because it measures the way consumers feel about their economic power. Higher readings usually predict increased spending in the future, which is an inflationary sign. Lower readings indicate less potential spending and an easing of inflation.
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.