What’s driving current mortgage rates?
Average mortgage rates unexpectedly moved up yesterday — but only by the smallest measurable amount. We had expected a similarly modest fall or a holding steady. And markets moved in ways that would normally deliver that. But the usually strong link between key markets and rates was temporarily broken. It happens.
Our feelings on locking (do so if you’re within 30 days of closing) seem widely shared among professionals. Yesterday, Churchill Mortgage’s Victor Burek summed it up for Mortgage News Daily: “There is more to risk than to gain” from floating too long.
The data below the rate table are indicative of mortgage rates falling moderately today. However, as always, that could change if new factors emerge that create a different mood in markets during the day.
|Conventional 30 yr Fixed||4.542||4.553||-0.08%|
|Conventional 15 yr Fixed||4.122||4.141||-0.04%|
|Conventional 5 yr ARM||4.125||4.678||Unchanged|
|30 year fixed FHA||3.75||4.738||-0.24%|
|15 year fixed FHA||3.688||4.638||-0.06%|
|5 year ARM FHA||3.688||5.133||-0.03%|
|30 year fixed VA||3.933||4.109||Unchanged|
|15 year fixed VA||3.813||4.126||Unchanged|
|5 year ARM VA||3.875||4.413||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 lower mortgage rates today. By approaching 10:00 a.m. (ET), the data, compared with this time yesterday, were:
- Major stock indexes were all a little lower soon after opening (good for mortgage rates but only a little). When investors are buying shares they’re often selling bonds, which pushes prices of Treasuries down and increases yields. See below for a detailed explanation
- Gold prices edged up to $1,275 from $1,271. (Good for mortgage rates, though only a bit) 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 $66 (neutral for mortgage rates, because energy prices play a large role in creating inflation)
- The yield on 10-year Treasuries moved down to 2.52 percent from 2.57 percent. (Good for borrowers). More than any other market, mortgage rates tend to follow these particular Treasury yields
- CNNMoney’s Fear & Greed Index inched up to 74 from 73 out of a possible 100. But today’s reading is slightly down from yesterday afternoon’s 75. So 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
Unless things change, today might be a better day for mortgage rates.
Rate lock recommendation
Consider buying discount points
Mortgage News Daily (MND) made a good case recently for purchasing discount points. For some borrowers, these are unusually cheap and represent good value. However, not all lenders are offering these bargains and their availability may change with market conditions. So you should explore your options with your loan officer or another professional.
Here’s MND’s thinking: “… for most lenders, it makes almost no sense to lock a rate of 4.25% or 4.75% today (assuming a conventional 30yr fixed…) because the cost to buy down to 4.125% and 4.625% respectively is so much smaller than normal.”
Trends are impossible to discern from just a few days’ changes. So don’t read too much into the recent rises. Frustrating though it is, there really is no way of knowing immediately what movements over a brief period mean in their wider context.
Even when one’s discernable, trends in markets never last forever. And, even within a long-term one, there will be ups and downs. Eventually, at some point, enough investors decide to cut losses or take profits to form a critical mass. And then they’ll buy or sell in ways that end that trend. That’s going to happen with mortgage rates. Nobody knows when or how sharply a trend will reverse. But it will. That might not be wildly helpful but you need to bear it in mind. Floating always comes with some risk.
Of course, it’s possible the Federal Reserve’s last big statement on rates has established a long-term downward trend. But you can still expect to see rises (such as those over the last couple of weeks) and falls within it as other risk factors emerge and recede. And, depending on how near you are to your closing date, you may not have time to ride out any increases.
Risks from a future recession
Of course, a recession couldn’t, by definition, arise before you close. But the more investors suspect there’s one on the horizon, the lower mortgage rates are likely to go.
And, amid mounting evidence of an economic slowdown, concerns are real. However, markets seem determined to ignore them. Last Friday, the Comerica Economic Weekly newsletter suggested they may have some grounds:
Recent U.S. economic data for February and March has been more positive following a soft patch that extended from the fourth quarter of 2018 into the first quarter of 2019. Because of the improved data we now believe that Q1 real GDP growth will still be weak, but likely not as weak as our April forecast where we show just 0.6 percent real GDP growth.
But, as this morning’s New York Times put it:
The inverted yield curve? Forget it. An earnings recession? Not a problem. The trade war? So what. Stock investors looked beyond those threats as they pushed the markets to record highs yesterday.
Meanwhile, markets are also focused on current U.S.-China trade talks. Both sides have worked long (President Trump’s original deadline passed many weeks ago) and hard to iron out problems. So what are the remaining issues? The main one seems to be “the fate of existing U.S. levies on Chinese goods, which Beijing wants to see removed,” in the words of The Financial Times.
On Apr. 4, President Trump’s predicted that it might take four or more weeks from then to finalize an “epic” agreement. Certainly, both sides badly need a good outcome, and for similar reasons: First, to burnish political prestige domestically by bringing home a win. And secondly, to step back from economic slowdowns.
However, some 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.
The last big Fed announcement, which was doveish and ruled out further rate hikes this year, will likely add some downward pressure on mortgage rates in coming months. As we’ve seen in recent weeks, that doesn’t mean there aren’t other risks (currently known and unknown) that could see them rise, possibly sharply. We suggest that you lock if you’re less than 30 days from closing.
Of course, financially conservative borrowers might want to lock immediately, regardless of when 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 an unexciting week for economic reports right up until Friday. Before then, they’re the sort of routine data that rarely creates more than background noise.
But Friday is different because that’s when figures for the first quarter’s gross domestic product (GDP) are released. If those are significantly better or worse than expected, we could see sharp movements and even the emergence of a decisive trend.
Actually, of course, any economic report can move markets if it contains sufficiently unexpected and shocking data. But, absent such shocks, there’s a hierarchy of how much investors care. They care a lot about GDP. No important economic data are due for publication today.
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 downward pressure on mortgage rates from worse-than-expected figures and upward on better ones.
- Monday: Existing home sales for March (actual: 5.21 million homes; forecast 5.35 million). That was down a disappointing 4.9 percent month-over-month
- Tuesday: March new home sales ( actual 692,000 homes; forecast 656,000)
- Wednesday: Nothing
- Thursday: March durable goods orders (forecast +0.5 percent)
- Friday: Q1 GDP ( forecast +2.3 percent). Also consumer sentiment index (forecast 97.0 points)
MarketWatch’s economic calendar remains (yes, really) slightly chaotic in the wake of the recent government shutdown. However, numbers published this week are all as normally scheduled. That won’t last and next week will see some data for earlier periods than would normally be the case while others will still be 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.