What’s driving current mortgage rates?
Average mortgage rates today rose because of some unexpected news. This morning, we received very important information in the form of the Consumer Confidence Index for October (highly important, expected to fall from 138.4 to 136.5). In fact, the index increased to 137.9.
That is huge because consumer spending drives two-thirds of the US economy, and more confidence equals more spending. More spending equals inflation potential. Inflation equals higher interest rates.
In addition, Case-Shiller released its Home Price Index for August (less important because it is older data). Prices changed from an annualized rate of 6.0 percent to a rate of 5.8 percent. That’s good for rates but did not have much effect.
|Conventional 30 yr Fixed||5.08||5.091||+0.04%|
|Conventional 15 yr Fixed||4.625||4.644||+0.04%|
|Conventional 5 yr ARM||4.5||5.008||+0.02%|
|30 year fixed FHA||4.833||5.844||+0.04%|
|15 year fixed FHA||4.0||4.953||Unchanged|
|5 year ARM FHA||4.188||5.447||-0.02%|
|30 year fixed VA||4.917||5.115||+0.04%|
|15 year fixed VA||4.125||4.441||Unchanged|
|5 year ARM VA||4.313||4.696||+0.07%|
|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 economic data indicate slightly higher mortgage rates in the short term.
- Major stock indexes opened higher and continued to rise (bad for rates)
- Gold prices dropped $16 to $1,226 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 remained at $67 a barrel (neutral for rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries remained stable at 3.10 percent. That’s neutral for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index fell 2 points to 8 (out of a possible 100). That score is in the “extreme fear” range (good for borrowers), and its downward movement is good for 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
Interest rates have been rising overall for some time. And today, the program you want may be in your strike zone. If closing soon, grab it. This week is very active and busy and floating may be a high risk/reward situation.
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 your 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 will be very busy from the very beginning, with many economic reports to digest as well as pre-election jitters and Twitters.
- Monday: Personal Income (expected to increase by .1 to .4 percent), Consumer Spending (expected to increase by .1 to .4 percent), and the Core Inflation Rate (expected to increase from zero to .1 percent)
- Tuesday: Case-Shiller Home Price Index for August (less important because it is older data), Consumer Confidence Index for October (highly important, expected to fall from 138.4 to 136.5).
- Wednesday: ADP Employment Report (fairly important because many investors believe that it foreshadows the monthly employment data released Friday — previous was 230,000 new payrolls added)
- Thursday: ISM Manufacturing Index for October (fairly important, predicted drop from 59.8 to 58.8)
- Friday: Employment Situation Report for October (extremely important, unemployment rate predicted to remain at 3.7 percent, expecting non-farm new payrolls to add 200,000, up from September’s 134,000, and average hourly earnings to increase by .2 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 (Jul 15th, 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.