What’s driving current mortgage rates?
Average mortgage rates held steady yesterday. A modest fall had looked more likely first thing. Still, their being unchanged was a real win for borrowers. That’s because those average rates remain immediately adjacent to their lowest level in more than 20 months.
The risks and benefits of greater volatility are likely to loom large this week and next. A lot is scheduled to happen that could set mortgage rates soaring — or tumbling further. The bird of ultra-low rates is in your hand. Do you want to wait and see how you’ll get on with the two in the bush? Either way, you may prefer to hold off for 24 hours or so because economic data were disappointing this morning. However, the big news today may come later with a lunchtime speech by Federal Reserve Chair Jerome Powell.
The data below the table are indicative of mortgage rates falling today. However, events might yet overtake that prediction, as they did yesterday.
|Conventional 30 yr Fixed||3.938||3.938||-0.06%|
|Conventional 15 yr Fixed||3.5||3.5||-0.06%|
|Conventional 5 yr ARM||3.813||4.485||Unchanged|
|30 year fixed FHA||3.313||4.297||-0.06%|
|15 year fixed FHA||3.375||4.324||Unchanged|
|5 year ARM FHA||3.375||4.942||-0.02%|
|30 year fixed VA||3.5||3.671||-0.06%|
|15 year fixed VA||3.438||3.748||-0.13%|
|5 year ARM VA||3.5||4.207||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 mortgage rates that are lower today. By approaching 10:00 a.m. (ET), the data, compared with this time yesterday, were:
- Major stock indexes were all moderately 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 and mortgage rates. The opposite happens on days when indexes fall. See below for a detailed explanation
- Gold prices were higher at $1,436 an ounce, up from $1,411. (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 inched up to $58 a barrel from $57 (bad for mortgage rates, because energy prices play a large role in creating inflation)
- The yield on 10-year Treasuries was lower at 1.99%, down from 2.04%. (good for borrowers). More than any other market, mortgage rates tend to follow these particular Treasury yields
- CNNMoney’s Fear & Greed Index edged down to 50 from 54 out of a possible 100. (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
It might be a better day for mortgage rates.
Today’s drivers of change
Are markets bottoming out?
Since the middle of last November, the graph of average mortgage rates shows them falling with amazing consistency. Only occasionally and relatively briefly have they risen.
Some experts are now warning that they’re unlikely to go much lower — at least, absent something disastrous happening that pushes them beyond established ranges. Such bad news remains a possibility. Currently, there are tensions in the Middle East that could quickly turn into a shooting war involving the United States. Trade disputes might become yet more widespread and toxic, ultimately triggering a global recession. And, of course, events may quickly arise that are currently on nobody’s radar.
But, without such an external stimulus, those experts reckon rates are unlikely to fall much further. And, of course, there’s scope for good economic news that could see them rise, possibly sharply.
Meanwhile, the deals that are available for you to lock in are now excellent by all but the most extreme standards. That’s why we still suggest locking your rate if you’re less than 30 days from closing. In our assessment, the potential gains you stand to make by floating are outweighed by the possible losses. But, as we say below on a daily basis, “Only you can decide on the level of risk with which you’re personally comfortable.”
The US-China trade dispute is very much alive. Indeed, President Trump increased tensions recently when he threatened to impose 25-percent tariffs on a further $300 billion of Chinese goods if that country’s government doesn’t cave by the end of this month. Last Monday, the White House announced that the two presidents would meet at the G20 summit this Friday and Saturday, which gave hope to investors.
Meanwhile, the possibility of a second front in the trade wars remains real. And there are increasing rumblings of a possible US-European Union (EU) trade dispute. The EU is the biggest trading bloc in the world and that would be a clash of Titans that could cause real harm to the global economy — as well as the economies of both participants.
How disputes hurt
A Bloomberg article suggested investors’ losses last month — mostly as a result of trade tensions — may have been close to $7 trillion. It went on to say, “This May was the second worst [for markets] since 1962.”
Markets hate trade disputes because they introduce uncertainty, dampen trade, slow global growth and are disruptive to established supply chains. The President is confident that analysis is wrong and that America will come out a winner. However, some fear a trade war — possibly on two fronts — might be a drag on the global economy that hits America especially hard. And that fear, in turn, is likely to exert downward pressure on mortgage rates. That’s not to say they won’t sometimes move up in response to other factors. But, absent a resolution, such trade wars may well see the current downward trend in mortgage rates continuing.
Treasuries and mortgage rates
You may remember that we recently stole a simile from Mortgage News Daily. Mortgage rates are like dogs while yields on 10-year Treasury bonds are like their owners. Mostly, mortgage rates trot happily along on their leashes at their human’s heels. But occasionally they run ahead, dragging the owner along. And at other times they sit stubbornly and have to be dragged along.
Recently, they’ve been sitting a lot. If they’d been keeping up with those Treasury yields, rates would be even lower than they currently are. Why? Apparently, investors are concerned they’re not being rewarded sufficiently for the extra risk they shoulder when they buy mortgage-backed securities rather than Treasury bonds. And some are worried about the possibility of the government reforming Fannie Mae and Freddie Mac.
Those Treasury yields are one of the main indicators we use to make predictions about where rates will head. And, with that tool less reliable than usual, we sometimes struggle to get those predictions right. Until the relationship between rates and yields gets back in synch, you should bear that in mind.
Rate lock recommendation
Trends are impossible to discern from just a few days’ changes. So don’t read too much into short-term 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.
Short- and long-term differences
Of course, it’s possible the Federal Reserve’s doveish March policy statement on rates, which seems to have been largely confirmed last Wednesday, 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.
Experts differ over what may come next. And so much is unpredictable that your gut feel may have roughly the same chance of being proved right as their more informed views. Just don’t forget that you’re gambling with the mortgage rate you’re probably going to be paying for a very long time.
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. After all, current mortgage rates remain exceptionally low and a great deal is assured. On the other hand, risk takers might prefer to bide their time and take a chance on further falls. 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
There’s a fair amount on this week’s agenda. Probably the biggest potential for change arises on Friday or Saturday when President Trump meets Chinese President Xi at the G20 summit. If they can resolve differences over trade, mortgage rates could soar. Meanwhile, you might see a similar effect if tensions with Iran dramatically escalate to the point of military engagement.
Scheduled economic reports mainly grow in importance as the week progresses. Tuesday’s consumer confidence index can be influential. But you have to wait until Thursday (gross domestic product (GDP) revision) and Friday (inflation, personal incomes and consumer spending) for the key ones. Of course, any economic report can move markets if it contains sufficiently shocking numbers.
Markets tend to price in analysts’ consensus forecasts (below, we mostly use those reported by MarketWatch, Moody’s Analytics or Bain Mortgage) 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: June consumer confidence index (actual 121.5 points; forecast 130.6 points); April Case-Shiller home prices (actual +3.5%; previous* +3.7%); and May new home sales (annualized actual 626,000 sales; forecast 673,000 sales)
- Wednesday: May durable goods orders (forecast -1.4% ) and advance trade in goods (forecast -$72 billion)
- Thursday: revised estimate of GDP in the first quarter (forecast unchanged at +3.1%)
- Friday: May data for personal income (forecast +0.4%), consumer spending (forecast +0.4%) and core inflation (forecast +0.2%). Also final reading of June consumer sentiment (forecast 98.7 points). The G20 summit begins today, which should see trade discussions between the American and Chinese presidents
* No forecast published
Compared with recently, this is quite a heavy week for economic reporting.
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% 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%).
- 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% 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%. 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 7%. 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.