What’s driving current mortgage rates?
Average mortgage rates held steady yesterday, in line with our forecast. That was very good news for two reasons. First, the day started with a slight upward momentum so their staying unchanged was a good result. And secondly, they’re exceedingly close to 12-month lows. So this is a very comfortable place to be.
Will this happy situation last? There are plenty of potential triggers for change in coming days and weeks. Trouble is, nobody yet knows in which direction consequent movements might be.
The data below the rate table are indicative of mortgage rates holding steady again or moving just a little in the short-term. Right now, a small fall looks most likely, but all that could change.
|Conventional 30 yr Fixed||4.583||4.595||Unchanged|
|Conventional 15 yr Fixed||4.125||4.144||Unchanged|
|Conventional 5 yr ARM||4.188||4.782||Unchanged|
|30 year fixed FHA||3.813||4.801||Unchanged|
|15 year fixed FHA||3.75||4.701||Unchanged|
|5 year ARM FHA||3.813||5.244||-0.03%|
|30 year fixed VA||4.493||4.687||Unchanged|
|15 year fixed VA||3.813||4.126||Unchanged|
|5 year ARM VA||4||4.523||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 (or very close to unchanged) mortgage rates today. By approaching 10:00 a.m. (ET), the data, compared with this time yesterday, were:
- Major stock indexes were mostly slightly higher soon after opening (bad for mortgage rates), with the Dow Jones Industrial Average the only exception
- Gold prices edged up to $1,297 from yesterday’s $1,295. (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 held steady at $57 a barrel (neutral for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries was very slightly lower at 2.63 percent. It was at 2.64 percent this time yesterday. They were islowly creeping up this morning (good for borrowers). More than any other market, mortgage rates tend to follow these Treasury yields
- CNNMoney’s Fear & Greed Index inched up to 60 from 58 out of a possible 100. So it remains firmly in “greed” territory. And today’s move is a little bad 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
So this morning’s indicators are mixed, suggesting conflicting pressures on mortgage rates. That might see them move just a little, if at all. Unless, of course, new factors enter the picture later.
Rate lock recommendation
Rates may have held steady yesterday, but there’s plenty on the horizon that could cause them to move. And, while some may seem geographically distant, in today’s interconnected world, foreign news can significantly affect the American economy.
For example, overnight, U.S. Treasury yields rose in Asia (they’re traded globally) on hopes that the British parliament might be closer to solving its nightmarish Brexit dilemma. An unpredictable vote is due in London later today and that could push those yields (and mortgage rates, with which they have a close relationship) higher if it settles the matter. A failure to find a resolution (something that looks increasingly likely as news breaks) could see them fall back.
Meanwhile, markets are increasingly focused on the current U.S.-China trade talks. Both sides badly need a good outcome for similar reasons: to shore up political support at home and to step back from economic slowdowns. But markets worry those pressures will prevent a win-win conclusion — and might even result in no deal being reached or a lose-lose one. Once the talks end, markets will digest the outcome in detail. If no deal is concluded, or if the one that ‘s agreed turns out to be worse than neutral for the U.S., expect mortgage rates to tumble. But, if it’s a win-win — or even just not too terrible and simply brings uncertainty to an end — they could rise.
And the Federal Open Market Committee meets next week (Mar. 19-20). That’s the Federal Reserve body that determines many interest rates. Understandably, investors and analysts will be reading the final day’s statement and watching the press conference closely. Expect market reactions if they find anything unexpected.
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, 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
By comparison with last week, there are fewer economic reports in coming days. This morning’s release of the February consumer price index could have been important. Inflation is something about which markets are highly sensitive. But today’s report was very close to expectations.
Tomorrow sees another inflation-related publicaion. But few expect it to contain any significant surprises. Markets will certainly pay attention to Friday’s industrial production and capital utilization data, both of which are measures of the strength of American industry. But those are no longer top-tier indicators and expectations are already low. However, any of these reports could move markets sharply if they contain information that’s wildly different from forecasts.
That’s because markets tend to price in analysts’ consensus forecasts (we use those reported by MarketWatch or Bain) 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. Although there are exceptions, you can usually expect mortgage rates to move downwards on bad news and upwards on good.
- Monday: January retail sales (actual +0.2 percent; forecast +0.1 percent)
- Tuesday: February consumer price index (actual +0.2 percent; forecast +0.1 percent)
- Wednesday: February’s producer price index (forecast +0.1 percent;).
- Thursday: Nothing
- Friday: February’s industrial production for February (forecast -0.5 percent) and capacity utilization (forecast 78.3 percent). Plus March consumer sentiment (forecast: 93.8/100)
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.