What’s driving current mortgage rates?
As predicted here, average mortgage rates moved down again yesterday. That makes three consecutive days of falls this week, following a similar run of rises last week. Although it’s true those increases were twice as big as the decreases so far, we’re heading in the right direction.
Will that continue? Nobody knows. Investors are biding their time, waiting for the current, mixed data to show a clear direction for the American economy. They’re also eyeing the continuing trade talks between the U.S. and China. Answers concerning the state of our economy may come as soon as tomorrow when official employment data are released.
The data below the rate table are mostly indicative of mortgage rates being lower in the short-term.
|Conventional 30 yr Fixed||4.667||4.678||Unchanged|
|Conventional 15 yr Fixed||4.208||4.227||Unchanged|
|Conventional 5 yr ARM||4.25||4.804||Unchanged|
|30 year fixed FHA||3.933||4.922||Unchanged|
|15 year fixed FHA||3.75||4.701||Unchanged|
|5 year ARM FHA||3.875||5.269||Unchanged|
|30 year fixed VA||3.995||4.172||Unchanged|
|15 year fixed VA||3.875||4.189||Unchanged|
|5 year ARM VA||4.063||4.546||-0.01%|
|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 lower mortgage rates today. By approaching 10:00 a.m. (ET), the data, compared with this time yesterday, were:
- Major stock indexes were quite sharply down soon after opening (good for mortgage rates)
- Gold prices held steady at $1,286. As recently as last Wednesday, they were up at $1,327. (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 edged up to $57 a barrel from yesterday’s $56 (neutral for mortgage rates because today’s change is tiny. But energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries fell to 2.65 percent from yesterday morning’s 2.71 percent. Very good for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index was down to 61 from 65 out of a possible 100. So it remains firmly in “greed” territory. Still, today’s move is 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 lower this evening.
Rate lock recommendation
We saw three consecutive days of mortgage rate rises at the end of last week. In contrast, there have been modest falls so far this week — even though there’s sometimes seemed to be a distinct lack of cause for those decreases.
Mortgage News Daily’s theory is that investors are waiting for stronger signs of direction within the economy before acting decisively in markets. If that’s correct, then Friday’s official employment data might trigger significant rises or falls. But there’s another consideration here.
As we explain below, the consensus forecasts that analysts make in advance of data releases are important. They play a big part in how markets respond to economic news. And the forecast for Friday’s employment figures appears to set a very low bar. Those analysts expect nonfarm payrolls (jobs) to have increased by 178,000 in February, according to MarketWatch. Which sounds great until you realize the January increase was 304,000.
So markets might see anything close to 178,000 as a win, even though many outsiders would regard it as a disappointment. And they might respond to such mediocre news in ways that bump up mortgage rates. Of course, if the actual number is much lower than expected, rates could tumble. But how likely is that?
Don’t forget there’s plenty of potential for bad news in today’s headlines that could send those rates back down whatever happens tomorrow. As we’ve seen recently, US-China trade talks remain a source of concern. CNBC reported yesterday, “Despite positive comments from different members of the U.S. administration, market players are yet to find out how far-reaching any deal could be.” In other words, investors are far from certain that the final deal will deliver on all the hype. Meanwhile, any re-escalation in tensions between India and Pakistan could also trigger significant falls. Of course, a satisfactory outcome for either could push rates up.
So, on balance, we see grounds for caution. And we’re continuing to suggest that you lock if you’re less than 30 days from closing. Of course, financially conservative borrowers might want to lock soon, whenever they’re due to close. On the other hand, risk takers might prefer to bide their time.
What’s going on this morning?
The big economic report out this morning concerned productivity in the last quarter of 2018. Clearly, this is of considerable importance, though it doesn’t rank as highly as tomorrow’s employment situation report. Today’s numbers were a little better than (but still close to) expectations. So they’re likely to have only a modest impact on mortgage rates.
Also this morning, the governing body of the European Central Bank (ECB — the equivalent of our Federal Reserve for eurozone countries) held a meeting. Can foreign central banks really affect American mortgage rates? In this modern, interconnected world, you bet. The press conference following today’s meeting was less than cheerful, with slashed growth forecasts and cheaper loans for banks. That wasn’t unexpected but just might exert some downward pressure on mortgage rates.
If you’re still floating, do remain vigilant right up until you lock. 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 tomorrow, are always capable of moving markets. Other outcomes are more likely to fuel or slow existing market momentum (if any builds) than generate much of their own. However, any report can be disruptive if it contains sufficiently shocking results — whether good or bad.
Markets tend to price in analysts’ 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)
- Tuesday: December new home sales were much better than expected (actual 621,000 units; forecast 576.000 units) and February’s ISM non-manufacturing index for business activity was also better (actual 59.7 percent; forecast 57.4 percent) from the Institute for Supply Management
- Wednesday: December’s trade balance (actual -$59.8 billion; forecast -$57.8 billion). ADP employment figures (+180,000 jobs in February; no forecast but January was +213,000) can also be important as a predictor of how Friday’s official payroll figures will turn out
- Thursday: weekly jobless claims (actual 223,000; 224,000 forecast), productivity for Q4 2018 (actual +1.9 percent; forecast +1.8 percent)
- Friday: official employment data for February, including nonfarm payrolls (forecast +178,000) 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.