What’s driving current mortgage rates?
Average mortgage rates edged down yesterday, as we predicted. That puts them back to where they were on Monday evening: adjacent to their lowest level in a month. Many commentators would urge you to take your gains and lock your rate right away. Because today has the potential to be volatile.
But you can see that two ways. On the one hand, you may prefer to gamble and wait over the weekend. Trade talks with China have reached a crisis point. If those talks break down completely and a heightened trade war begins later today, then rates may have further to fall. On the other hand, if China caves or stalls and that war is averted, there could be sharp rises. Do you want to lay that bet? To keep up with this read our “China talks” section, below.
The data below the rate table are indicative of mortgage rates edging down or holding steady today. But with the scene set for a day of high drama, almost anything could happen.
|Conventional 30 yr Fixed||4.188||4.188||+0.06%|
|Conventional 15 yr Fixed||3.745||3.745||+0.06%|
|Conventional 5 yr ARM||4.063||4.637||Unchanged|
|30 year fixed FHA||3.75||4.738||Unchanged|
|15 year fixed FHA||3.625||4.575||Unchanged|
|5 year ARM FHA||3.625||5.067||Unchanged|
|30 year fixed VA||3.813||3.987||Unchanged|
|15 year fixed VA||3.688||4||Unchanged|
|5 year ARM VA||3.813||4.346||+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 lower or unchanged mortgage rates today. By approaching 10:00 a.m. (ET), the data, compared with this time on Friday, were:
- Major stock indexes were all lower soon after opening (good for mortgage rates). When investors are buying shares they’re often selling bonds, which pushes prices of Treasuries down and increases yields. The opposite happens on days like today. See below for a detailed explanation
- Gold prices edged up to $1,288 from $1,282. (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 $62 a barrel (neutral for mortgage rates, because energy prices play a large role in creating inflation)
- The yield on 10-year Treasuries inched up to 2.44 percent from 2.43 percent. (Bad for borrowers). More than any other market, mortgage rates tend to follow these particular Treasury yields
- CNNMoney’s Fear & Greed Index edged up to 42 from 37 out of a possible 100. It was up at 59 a week ago. (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
If nothing changes in coming hours, today might be a quiet one for mortgage rates. How likely is it nothing will change?
At 12:01 a.m. (ET) this morning, the U.S. imposed new tariffs on many Chinese imports and hiked some existing ones. This was intended to pile pressure on China’s trade delegation, currently engaged in talks in Washington D.C. In response, China has already said it will retaliate with “necessary countermeasures,” which means it plans to raise its tariffs on U.S. goods. However, President Trump this morning tweeted, “Talks with China continue in a very congenial manner – there is absolutely no need to rush …”
And the new tariffs and tariff rates imposed overnight do come with a built-in grace period. They apply only to goods that are yet to leave China, not those in transit. So they won’t begin to be collected for a while — perhaps a couple of weeks. And that may give sufficient breathing space for both sides to find common ground before any real pain is felt.
The Trump administration’s play may be seen as a high-stakes move that could bring either a swift and successful agreement — or a complete breakdown in the talks. However, if it fails, there could be very real consequences for the American economy. Wednesday’s New York Times quoted forecasts from Moody’s Analytics that the failure of these talks would “subtract 1.8 percentage points from G.D.P. growth and cause unemployment to rise.”
By 10:00 a.m. (ET) this morning, markets had reacted much less sharply to recent news than you might have expected. At one point, the Dow was down 150 points, but that’s not extreme.
Mortgage rates and China
It was fear of those consequences that triggered Monday’s sharp fall in average mortgage rates. However, they’ve barely budged since then. And that’s surprising. Mortgage rates are usually heavily influenced by certain other markets (we list most of them, above) and would normally have fallen further on Tuesday and Wednesday. This writer’s yet to hear a complete and convincing reason for why they didn’t. If and when he does, you’ll be the first to know.
In the meantime, here are a couple of likely scenarios. If the talks appear to be getting back on track, markets could respond by pushing mortgage rates higher. With luck, the same mechanism that recently stopped them falling as sharply as expected will prevent extreme rises. But you probably shouldn’t bank on that. Of course, if the talks fall apart completely, that would normally trigger further significant falls.
Rate lock recommendation
Trends are impossible to discern from just a few days’ changes. So don’t read too much into recent fluctuations. 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 March statement on rates has established a long-term downward trend. But you can still expect to see rises and falls (such as those over the last several weeks) 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.
Last Friday’s better-than-expected employment data followed the previous Friday’s better-than-expected GDP figures. And, between the two, there had been other generally positive reports, including one about productivity. You might normally have expected those to generate higher mortgage rates. At other times, they might even have created a clear upward trend. But not now.
Some of this may be down to investors reading beyond the headline figures in economic reports. For example, NASDAQ’s Weekly Economic Release Summary, published last Friday, said, “… the GDP internals were weak even though the reported overall number was strong.” But some of it may be down to underlying skepticism over the sustainability of growth based on a one-time, massive tax cut.
So, for now, markets seem unable to make up their minds what the future holds. If and when they do, mortgage rates could rise (on optimism) or fall (on pessimism).
Last Wednesday’s Fed announcement didn’t move policy on from that declared after March’s meeting. That was doveish and ruled out further rate hikes this year. And it will likely continue to 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, almost 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
After last week’s feast of economic data, this week sees a famine. It was possible today’s consumer price index (CPI) report might have moved markets. But the numbers were unexceptional. And, anyway, markets remain somewhat preoccupied with China.
Of course, it remains true that any economic report can cause waves if it contains sufficiently shocking data. But probably not this week.
Markets tend to price in analysts’ consensus forecasts (below, 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. Although there are exceptions, you can usually expect downward pressure on mortgage rates from worse-than-expected figures and upward on better ones. However, for most reports, much of the time, that pressure may be imperceptible or barely perceptible.
- Monday: Nothing
- Tuesday: March job openings (actual 7.5 million jobs). Also, consumer credit data for March will be published at 3:00 p.m. (ET)
- Wednesday: Nothing
- Thursday: March trade deficit (actual –$50.0 billion; forecast -$50.1 billion) and April producer price index (actual +0.2 percent; forecast +0.2 percent)
- Friday: April CPI — actual +0.3 percent; forecast +0.4 percent), including core CPI (actual +0.1 percent; forecast +0.2 percent). Also, the federal budget will be published at 2:00 p.m. (ET)
That was a much lighter schedule than most weeks contain.
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.