What’s driving current mortgage rates?
As we predicted, average mortgage rates continued to climb on Friday, though not as sharply as they did on Thursday. Still, those two days took their toll, and you have to go back to the end of January to find higher ones. We concur with Mortgage News Daily, which suggests this unwelcome movement may have been down to several small factors rather than one big one.
It seems unlikely today’s economic data (there’s only one report, for construction spending) will move markets much. So, absent bombshell news, we expect the ones that determine mortgage rates to drift.
The data below the rate table are mostly indicative of unchanged or only slightly higher rates in the short-term.
|Conventional 30 yr Fixed||4.708||4.72||Unchanged|
|Conventional 15 yr Fixed||4.167||4.186||Unchanged|
|Conventional 5 yr ARM||4.25||4.804||Unchanged|
|30 year fixed FHA||3.933||4.922||Unchanged|
|15 year fixed FHA||3.813||4.764||Unchanged|
|5 year ARM FHA||3.875||5.28||Unchanged|
|30 year fixed VA||4.542||4.736||Unchanged|
|15 year fixed VA||3.875||4.189||Unchanged|
|5 year ARM VA||4||4.535||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
First thing this morning, markets looked set to deliver unchanged mortgage rates today or ones that are the tiniest bit higher. By approaching 10:00 a.m. (ET), the data, compared with this time on Friday, were:
- Major stock indexes were all higher soon after opening (good for mortgage rates) but not as sharply so as on Thursday and Friday.
- Gold prices eased down again, standing at $1,285 an ounce compared to Friday’s $1,309. They were up at $1,327 last Wednesday. (This 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 held steady yet again at $57 a barrel (neutral for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries edged up to 2.75 percent from Friday morning’s 2.74 percent. That’s bad for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index inched down to 69 from 72 out of a possible 100. So it remains firmly in “greed” territory. Today’s move is slightly better for borrowers. “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. So lower readings are better than higher ones
Unless something big intervenes during the day, it looks likely mortgage rates will be the same or just a bit higher this evening.
Rate lock recommendation
A lot’s changed in a week. But, of course, three consecutive days of rises do not make a trend. And markets, first thing, felt as if they’d lost some of the momentum they discovered at the end of last week.
As importantly, it’s worth remembering that there’s plenty of potential for bad news in today’s headlines that could send those rates back down. In particular, any escalation in tensions between India and Pakistan or a last-minute break up of the U.S.-China trade talks could trigger significant falls. However, the Wall Street Journal reported over the weekend that those talks were in their final stages. But the New York Times said leaks suggested that the agreement would “do little to address key structural issues.” We’ll have to wait to see how markets judge any outcome.
Nothing’s moved sufficiently over the weekend for us to change our recommendations. So we continue to suggest that you lock if you’re less than 30 days from closing.
What’s going on this morning?
So far this morning, there has been little to disrupt the markets that mainly determine mortgage rates. So there’s a good chance they’ll return to drift mode for the rest of the day. However, today’s construction spending data were released at 10:00 a.m. (ET), which is minutes before our deadline. So, while we report the numbers below, we haven’t had time to assess markets’ reaction (if any) to them. The actual figure was much worse than expected, so there may be potential for movement.
So, if you’re still floating, do remain vigilant. Continue to watch key markets and news cycles closely. In particular, look out for stories that might affect the performance of the American economy. As a very general rule, good news tends to push mortgage rates up, while bad drags them down.
When to lock anyway
You may wish to lock your loan anyway if you are buying a home and have a higher debt-to-income ratio than most. Indeed, you should be more inclined to lock because any rises in rates could kill your mortgage approval. If you’re refinancing, that’s less critical and you may be able to gamble and float.
If your closing is weeks or months away, 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. 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
- LOCK if closing in 30 days
- FLOAT if closing in 45 days
- FLOAT if closing in 60 days
There are fewer items on this week’s economic calendar than last. However, employment data, out on Friday, are always capable of moving markets. Other outcomes are more likely to fuel or slow existing market momentum than cause a change of direction. However, any report can be disruptive if it contains sufficiently shocking results — whether good or bad.
Markets tend to price in economists’ consensus forecasts (we use those reported by MarketWatch) in advance of the publication of reports. So it’s usually the difference between the actual reported numbers and the forecast that has the greatest effect. That means even an extreme difference between actuals for the previous reporting period and this one can have little immediate impact, providing that difference is expected and has been factored in ahead.
- Monday: December construction spending (actual -0.6 percent; forecast +0.3 percent; previous +0.8 percent)
- Tuesday: December new home sales (forecast 576.000 units) and February’s ISM non-manufacturing index (forecast 57.4 percent) from the Institute for Supply Management
- Wednesday: December’s trade balance (forecast -$57.8 billion). ADP employment figures can also be important as a predictor of how Friday’s official payroll figures will turn out
- Thursday: weekly jobless claims (224,000 forecast), productivity for Q4 2018 (forecast +1.7 percent)
- Friday: official employment data for February, including nonfarm payrolls (forecast +180,000) and average hourly earnings (forecast +0.3 percent). Plus January housing starts (forecast: 1.222 million annualized)
MarketWatch’s economic calendar remains slightly chaotic in the wake of the recent government shutdown. Some numbers published this week are for earlier periods than would normally be the case, and others are still being delayed.
What causes rates to rise and fall?
Mortgage interest rates depend 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 5 percent interest ($50) each year. (This is called its “coupon rate” or “par rate” because you paid $1,000 for a $1,000 bond, and because its interest rate equals the rate stated on the bond — in this case, 5 percent).
- Your interest rate: $50 annual interest / $1,000 = 5.0%
When rates fall
That’s a pretty good rate today, so lots of investors want to buy it from you. You can sell your $1,000 bond for $1,200. The buyer gets the same $50 a year in interest that you were getting. It’s still 5 percent of the $1,000 coupon. However, because he paid more for the bond, his return is lower.
- 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.
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.