What’s driving current mortgage rates?
Average mortgage rates today are all over the place. (Keep in mind, these are average rate, and your individual lender has its own policies and set of prices.) But VA borrowers are definitely the winners this morning. I expect lenders may be repricing for better this afternoon if the economic data keeps coming in low. (See today’s data below.)
Weekly jobless claims came in higher than expected (predicted: 205,000) with 214,000 new claims. That’s positive for mortgage rates because it’s linked to less inflationary pressure on wages. More importantly, the Consumer Price Index (CPI), which measures inflationary pressures NOW and at the consumer level, came in lower than predicted, increasing by .1 percent instead of the expected .2 percent.
Because consumer activity drives two-thirds of the US economy, this is considered an important event, and the results today are good for mortgage rates.
|Conventional 30 yr Fixed||5.0||5.011||-0.13%|
|Conventional 15 yr Fixed||4.625||4.644||Unchanged|
|Conventional 5 yr ARM||4.563||4.969||Unchanged|
|30 year fixed FHA||4.792||5.802||+0.31%|
|15 year fixed FHA||3.938||4.89||-0.06%|
|5 year ARM FHA||4.313||5.51||+0.01%|
|30 year fixed VA||4.833||5.031||-0.08%|
|15 year fixed VA||4.063||4.378||-0.06%|
|5 year ARM VA||4.438||4.755||-0.02%|
|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 positive for mortgage rates.
- Major stock indexes opened lower (good for rates)
- Gold prices rose $31, which is huge, to $1,223 an ounce. (That is very positive 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 $2 to $72 a barrel (also very good for rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries fell 5 basis points (5/100ths of 1 percent) to 3.17 percent. That’s excellent news for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index fell another 8 points from 16 to 8, “extreme fear.” To get this in perspective, a month ago the index was at 56 (“greed”) and a year ago at 85 (“extreme greed”). Tariffs and deficits are scaring many people witless.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 favorable if you are closing soon. This may be one of those blips that allow you to get a better deal than you expected.
On the other hand, this could be the start of a downward trend (investors seem to think so), and waiting could pay off if you have the time to play with and the inclination to gamble.
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 (Feb 17th, 2019)
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.