What’s driving current mortgage rates?
Average mortgage rates yesterday moved down for a fourth consecutive day. That was in line with our forecast. This week’s falls are now close to canceling last week’s rises.
Will today’s highly important employment situation report finally break the up-and-down drift in markets? It seems not. Even though the headline figure was much worse than expected, key markets were mixed 90 minutes after publication.
Indeed, the data below the rate table are indicative of mortgage rates being a little higher or holding steady in the short-term. However, markets are reacting far from normal this morning. So our forecast doesn’t come with a high degree of certainty.
|Conventional 30 yr Fixed||4.605||4.616||-0.04%|
|Conventional 15 yr Fixed||4.167||4.186||-0.04%|
|Conventional 5 yr ARM||4.125||4.76||-0.02%|
|30 year fixed FHA||3.87||4.859||-0.06%|
|15 year fixed FHA||3.688||4.638||-0.06%|
|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||4.523||-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
First thing this morning, markets looked set to deliver slightly higher or unchanged mortgage rates today. By approaching 10:00 a.m. (ET), the data, compared with this time yesterday, were:
- Major stock indexes were all quite sharply down soon after opening (good for mortgage rates)
- Gold prices rose steeply to $1,298 from yesterday’s $1,286. As recently as last Wednesday, they were up at $1,327. (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 edged down to $55 a barrel from yesterday’s $57 (good for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries held steady at 2.65 percent. While that sounds neutral, it’s actually bad for borrowers because they were (weirdly) rising this morning after falling yesterday. More than any other market, mortgage rates tend to follow Treasury yields
- CNNMoney’s Fear & Greed Index was down to 57 from 61 out of a possible 100. So it remains firmly in “greed” territory. Still, today’s move is good 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
There are lots of “good for mortgage rates” in those bullet points. But yields on 10-year Treasuries generally have the biggest impact on mortgage rates. And those were all over the place earlier this morning. So things may well change in coming hours.
Rate lock recommendation
If you follow the headlines, you may have seen Freddie Mac report quite a rise in rates over the seven days ending Mar. 7. Freddie’s figures are great over the long term. But they’re not so good on short-term trends. That’s because, as Mortgage News Daily points out, it usually picks up on rates only on Mondays and Tuesdays and ignores other days’ data. That’s fine over months but not over a single week. Best to skip over its weekly reports when you’re deciding whether to float or lock.
The official, monthly employment situation report is a top-tier economic indicator. In terms of influence on markets, it’s up there with gross domestic product (GDP), incomes and inflation. So this morning’s publication was one of relatively few that on its own could give direction to mortgage rates and other market trends.
Over the last couple of days, we’ve asked how likely it is that the number of new jobs in February would fall below analysts’ modest (or pessimistic) forecast of +178,000. After all, the January figure had been +311,000 (revised up today). Well, now we know. Highly likely. It turns out the economy added just 20,000 jobs, something CNBC called a “major jobs miss.”.
There are three reasons today’s news might not have as great an impact as you’d expect. First, wages grew an inflation-busting 3.4 percent over the 12 months ending in February, which was excellent. Secondly, “Many economists were quick to point out that the data can jump around a lot month to month and January saw a particularly strong 311,000 jobs added, so the anticipation was for a weaker February,” in The Washington Post’s words. And finally, J.P. Morgan Chase chief economist Mike Feroli told CNBC, “I think in a way it could all be related to the fact that it’s a very tight labor market and it’s more difficult to fill vacancies and it’s hard to draw people back into the labor market.”
Even though it seemed at first inconceivable that markets would react calmly to this morning’s shocking news, by approaching 10:00 a.m. (ET), much of the mayhem one might have expected was missing.
Possible rises and falls
Don’t forget there’s plenty of potential for more bad news in today’s headlines that could send those rates down further. As we’ve seen recently, US-China trade talks remain a source of concern. CNBC reported Wednesday, “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.
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 (not observed so far today), 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
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 (actual +20,000; forecast +178,000) and average hourly earnings (actual +0.4 percent; forecast +0.3 percent). Plus January housing starts (actual 1.230 million units; forecast: 1.215 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.