What’s driving current mortgage rates?
Mortgage rates today are slightly lower than they were yesterday. This morning, we have a slew of reports — the ones scheduled for Thursday as well as Wednesday’s, which were postponed in honor of yesterday’s day of mourning for our 41st president.
October Factory Orders (moderate importance, predicted -2 percent), came in with fewer orders than anticipated, a 2.1 percent drop. That is good for mortgage rates.
This was offset by the ISM Non-manufacturing Index, which tracks industry performance in non-manufacturing firms. It came in higher than expected. Analysts predicted a level of 59.8 and got 60.7. That’s good for the economy but not for mortgage rates.
And finally, we have the ADP Employment Report. Investors watch this one for clues about tomorrow’s Employment Situation Report — the most important report for the month. This morning, payroll processing giant ADP announced that it added 179,000 jobs in November, exactly in line with the experts’ predictions. So it won’t affect today’s mortgage rates.These rates are averages. Click here to get your personalized rate now. (Dec 11th, 2018)
|Conventional 30 yr Fixed||4.917||4.928||Unchanged|
|Conventional 15 yr Fixed||4.497||4.516||Unchanged|
|Conventional 5 yr ARM||4.375||5.005||Unchanged|
|30 year fixed FHA||4.708||5.718||-0.04%|
|15 year fixed FHA||3.938||4.89||Unchanged|
|5 year ARM FHA||4.0||5.42||+0.01%|
|30 year fixed VA||4.792||4.989||Unchanged|
|15 year fixed VA||4.125||4.441||Unchanged|
|5 year ARM VA||4.063||4.653||-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
All financial numbers point to lower mortgage rates.
- Major stock indexes are sharply lower (good for mortgage rates)
- Gold prices rose $6 to $1,248 an ounce. (This is good 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 $51 a barrel (good for rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries plunged another 7 basis points (7/100th of one percent) to its lowest point in many weeks at 2.85 percent. That’s good for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index fell 9 points this morning, following yesterday’s 11-point drop, to a reading of 11 (out of a possible 100). That score is in the “extreme fear” range. And the direction, more fearful, 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
Mortgage rates could fall today, as all economic data point to lower rates. You may want to float another day if that will get you into a better tier (for instance, drop from a 45-day lock to a 30-day, or a 30-day into a 15-day lock). But if closing soon, current rates are attractive enough to feel good about.
Keep in mind, however, that if the Employment Situation report tomorrow is unexpectedly strong, mortgage rates could spike very quickly. It’s a fear-driven market, and rates tend to rise much faster than they fall. If you can’t afford a higher rate, don’t chance floating today.
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 offers fewer reports, but Tuesday and Thursday’s consumer-related data are important. Stay in contact with your lender if you’re still floating a rate.
- Monday: ISM Manufacturing Index (moderate importance, predicted 58.2)
- Tuesday: Nothing
- Wednesday: Beige Book (moderate importance)
- Thursday: October Factory Orders (moderate importance, predicted -.2 percent),
- ADP Employment (moderate importance, ISM Non-manufacturing Index (moderate importance, predicted 59.8)
- Friday: November Employment Situation Report (high importance, 3.7 percent unemployment predicted), November Consumer Sentiment Index (moderate importance)
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 11th, 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.