What’s driving current mortgage rates?
For the fourth business day running, average mortgage rates yesterday remained unchanged. That’s great because it means they remain at their lowest level since January 2018.
But that could all change today. The Fed will publish later an exceptionally important report, including economic projections and interest-rate policy announcements, that could trigger an upheaval in markets. Trouble is, the report’s due out at 2:00 p.m. (ET), with a press conference 30 minutes later. And we have no clue what it will say in those. Read on for details.
Yet again, the data below the rate table are indicative of mortgage rates holding steady today — or perhaps just inching downward. But that might change this afternoon.
|Conventional 30 yr Fixed||4.5||4.511||Unchanged|
|Conventional 15 yr Fixed||4.038||4.057||-0.04%|
|Conventional 5 yr ARM||4.188||4.757||Unchanged|
|30 year fixed FHA||3.813||4.801||Unchanged|
|15 year fixed FHA||3.688||4.638||Unchanged|
|5 year ARM FHA||3.813||5.231||Unchanged|
|30 year fixed VA||4.413||4.607||Unchanged|
|15 year fixed VA||3.75||4.063||Unchanged|
|5 year ARM VA||3.875||4.465||-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 unchanged mortgage rates or only a small (probably downward) movement. But today, with that Fed report looming, those indicators are less reliable than normal. By approaching 10:00 a.m. (ET), the data, compared with this time yesterday, were:
- Major stock indexes were slightly lower soon after opening (good for mortgage rates)
- Gold prices edged inched down to $1,307 from $1,309. (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 again held steady at $59 a barrel (neutral for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries edged down to 2.59 percent from 2.62 percent. (Good for borrowers). More than any other market, mortgage rates tend to follow these particular Treasury yields
- CNNMoney’s Fear & Greed Index fell back to 66 from 69 out of a possible 100. So it remains firmly in “greed” territory. Today’s movement 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
To repeat ourselves, all this could change at 2:00 p.m. (ET). There’s a serious possibility (though maybe not a probability) of significant disruption this afternoon.
Rate lock recommendation
Rates may be in a good place right now, but will that last? It may. However, there are plenty of factors on our radar that could see them rise. And those are just as likely to materialize as ones that could create further falls.
Today’s big opportunity/threat for mortgage rates
The Federal Open Market Committee (FOMC) concludes a two-day meeting today. That’s important because the FOMC is the Federal Reserve body that determines many interest rates. And investors have expectations in advance for what they hope to read in this afternoon’s 2:00 p.m. (ET) statement (including the forecasts it will contain) and hear at the press conference 30 minutes later. If they’re told what they want to hear, that would be seen as good news and mortgage rates might rise, depending on other pressures. However, CNBC pointed out last Friday that markets have already priced in a “good” outcome:
The Fed’s meeting is the big deal for markets in the coming week, and it is widely expected to send a message that investors in both bonds and stocks could find bullish. But analysts in both markets say the Fed’s message has been well telegraphed, and market response could be tepid or even a “sell the news” reaction.
And, of course, there’s still a possibility of a less friendly outcome from the FOMC. That too could see those rates fall even further.
Mortgage News Daily suggested yesterday that one potential trigger of disruption concerns when and how the Fed ends its “balance sheet runoff” policy. Under this, it currently doesn’t buy more Treasury bonds with the money made available when its existing bonds are paid off. And, if it ends that policy, it would again become a major purchaser of those bonds. That would normally push up bond prices (just supply and demand at work) and reduce their yields. And that could put downward pressure on mortgage rates. More on how that works below.
This concerns the manner in which Britain leaves the European Union (Brexit), if at all. Somewhat belatedly, Prime Minister May recently branded the new situation a “crisis.” And that was confirmed by a cabinet meeting yesterday, descriptions of which ranged from “tetchy” to “reminiscent of the final days of Rome.” In other words, even the 23 members of the executive can’t agree on a way forward. And the legislature is riven with at least as many divisions. All this would be almost funny if the UK was not currently facing a deadline of Mar. 29 and in desperate need of a consensus solution.
If those British politicians eventually find a way forward, that would be good news for the global economy and might see mortgage rates rise. However, if the muddle continues or the country crashes out with no deal (still a possibility) in nine days, mortgage rates could stay low or even dip further.
Meanwhile, markets are increasingly focused on current U.S.-China trade talks. Last Thursday, President Trump gave reporters a progress report: “We’ll have news on China. Probably one way or the other, we’re going to know over the next three to four weeks.” His original Mar. 1 deadline for an agreement passed nearly three weeks ago. But both sides badly need a good outcome, and for similar reasons: to increase political prestige at home and to step back from economic slowdowns.
However, 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, investors 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.
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.
Only you can decide on the level of risk with which you’re personally comfortable. If you are 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
It’s another light week for reports of economic data. And none of those being published are highly important. Of course, any report can move markets if it contains sufficiently shocking figures. But the chances are this week’s releases will have little impact.
The only scheduled excitement likely this week is this afternoon’s FOMC statement, which isn’t really a data release. As discussed above, even that statement and its follow-up press conference might turn out to be damp squibs. So, unless the Fed introduces some dry gunpowder, you probably shouldn’t expect fireworks from scheduled reports in coming days. Unscheduled news is a different matter.
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: Nothing
- Tuesday: January factory orders (actual +0.1 percent; forecast +0.4 percent)
- Wednesday: Federal Open Market Committee statement (2:00 p.m. (ET)) and press conference (2:30 p.m. (ET))
- Thursday: March Philly Fed Index (forecast +5.0 percent)
- Friday: February’s existing home sales (forecast 5.1 million units). Plus March “flashes” (early readings, subject to revision) of Markit’s purchasing managers indexes (PMIs) for manufacturing and services
MarketWatch’s economic calendar remains (yes, really) 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.