What’s driving mortgage rates today?
Average mortgage rates should have fallen yesterday, in line with our prediction. But they didn’t. They remained at the same, ultralow level. Under the headline, “Mortgage Rates Miraculously Flat Despite Massively Lower Treasury Yields,” Mortgage News Daily explained it thus: “ALMOST without fail, a big drop in 10-year Treasury yields will coincide with lower mortgage rates. … But today [Monday], despite a substantial drop in Treasury yields, mortgage rates are stuck in the mud.”
The fact that mortgage rates are moving (or not moving) so atypically compared with other markets poses a problem for those charged with predicting those rates. Because those markets are the main tools we use to make our forecasts. Let’s hope normal service resumes quickly. In the meantime, it’s possible some lenders will be adjusting their rate sheets downward first thing to take some account of yesterday’s falls.
However, overall, mortgage rates today look likely to rise. But that assumes those rates move as they usually do against other markets. And, as always, events might yet overtake that prediction.
|Conventional 30 yr Fixed||3.683||3.683||Unchanged|
|Conventional 15 yr Fixed||3.313||3.313||+0.06%|
|Conventional 5 yr ARM||3.875||4.109||Unchanged|
|30 year fixed FHA||3.25||4.234||+0.06%|
|15 year fixed FHA||3.25||4.197||Unchanged|
|5 year ARM FHA||3.375||4.609||-0.01%|
|30 year fixed VA||3.313||3.482||Unchanged|
|15 year fixed VA||3.313||3.622||Unchanged|
|5 year ARM VA||3.5||3.854||-0.01%|
|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 today that are higher. By approaching 10 a.m. (ET), the data, compared with this time yesterday, were:
- Major stock indexes were all higher soon after opening. (Bad for mortgage rates). When investors are buying shares they’re often selling bonds, which pushes prices of Treasurys down and increases yields and mortgage rates. The opposite happens on days when indexes fall. See below for a detailed explanation
- Gold prices fell to $1,509 an ounce from $1,516. (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 rose to $56 a barrel from $55. (Bad for mortgage rates, because energy prices play a large role in creating inflation)
- The yield on 10-year Treasurys held steady at 1.68%. (Neutral for mortgage rates). More than any other market, mortgage rates tend to follow these particular Treasury bond yields
- CNNMoney’s Fear & Greed Index fell to 25 from 29 out of a possible 100 points. (Good for mortgage rates.) “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 worse day for mortgage rates.
Verify your new rate (August 13, 2019)
Today’s drivers of change
The Federal Reserve’s rate cut at the end of July — the first in more than 10 years — took nobody by surprise. However, the economic statement that accompanied the decision was less firm than some had expected. As CNBC put it that day, “Fed disappoints markets by sounding more ‘neutral’ than dovish.” Many had hoped for a stronger hint of future rates cuts.
But, exactly one week later, Chicago Federal Reserve President Charles Evans gave them just such a hint. He said he’d be open to lowering rates further. And markets took that to mean there could be multiple cuts later this year, perhaps including one in the middle of September.
That at least partly explains why markets last Wednesday recovered from the free fall that looked likely first thing that morning. And last Thursday’s sharp rise was a continuation of that — plus unexpectedly good economic data out of China.
The US-China trade dispute has escalated significantly recently. At the end of July, renewed trade talks that were being conducted in China ended abruptly, though they were described by both sides as “constructive.” They’re not expected to resume until September.
But then, seemingly in response, President Donald Trump announced that new tariffs (10% on $300 billion worth of Chinese goods) would be introduced from Sept. 1. And, days later, China retaliated, allowing its currency to fall below a long-established floor. It also said it would suspend its purchases of US farm products.
It was this escalation that triggered the recent mayhem in markets.
Meanwhile, the possibility of a second front in the trade wars remains real. And there are general rumblings of possible escalations in the US-European Union (EU) trade dispute. Recently, the U.S. proposed more tariffs on EU goods, though those are yet to be implemented.
How disputes hurt
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 long-term 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 or plateauing.
“Inverted yield curve” is easy to understand
On August 6, The New York Times reported about the previous day’s issues:
Yields on United States Treasuries, which fall as prices rise, dropped as investors sought safety in government-backed bonds. That deepened the inversion of the yield curve, a predictor of impending recession.
An “inverted yield curve” is an impressive piece of jargon that’s actually easy to understand. It simply means that short-term Treasury bonds are giving higher yields than long-term ones. Yes, that’s rare. You usually expect to get a better return the longer you commit to an investment.
It’s also a little scary. Almost invariably in the past when the yield curve has inverted, a recession has soon followed. That doesn’t mean it will happen this time. But it’s a bit worrying.
Anytime yields are higher on longer-term bonds than shorter ones, that’s an inversion. But it’s when the 2- and 10-year Treasury yields invert that has proved to be the most reliable predictor of recessions. And those two haven’t crossed the line for more than a decade. But, as CNBC just reported, they’re in danger of doing so this morning.
Brexit is Britain’s exit from the EU. New UK Prime Minister Boris Johnson currently seems firm about his country ceasing to be an EU member state on October 31.
He insists that will happen regardless of whether a withdrawal agreement containing transitional arrangements is in place. But such a “no-deal Brexit” is widely seen as a profound act of economic self-harm that could affect the wider global economy.
The last time Brexit was perceived to be a real threat to the global economy, it had a direct effect on American mortgage rates, pulling them down. That may well happen again this time around — though probably not noticeably until closer to that Halloween deadline.
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 those rates are 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 between Pakistan and India and within the Middle East that could rapidly turn into a shooting wars. 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.
… Maybe not
Not everyone agrees with this analysis. And recent events call it into question. Read Could we see 2% mortgage rates before this is all over?
Recently, The Financial Times speculated about the possibility of negative interest rates in the US. And, yesterday morning, The Wall Street Journal joined in that speculation. The newspapers were, of course, referring to the Fed’s internal rates there. Nobody’s (yet!) suggesting mortgage rates could ever turn negative.
Treasurys and mortgage rates
We liked a Mortgage News Daily simile so much we stole it. 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 behind to keep up.
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 the gap? Two reasons. Apparently, investors are concerned they’re not being rewarded sufficiently for the extra risk they shoulder when they buy mortgage-backed securities (bundles of mortgages, wrapped up into a bond-like product and sold on a secondary market) rather than Treasury bonds. And some are worried about the possibility of the government reforming Fannie Mae and Freddie Mac.
Sometimes, a third reason can play a part in rates sitting. The things that spook or please investors in Treasury bonds don’t apply to mortgage-backed securities.
Those Treasury yields are one of the main indicators we use to make predictions about where rates will head. And, with that tool more unreliable than usual, we sometimes struggle to get our daily predictions right. Until the relationship between rates and yields gets back in sync, you should bear that in mind.
Last Friday and yesterday provided sharp reminders that mortgage rates are determined by the price of mortgage-backed securities and not other markets. However, there’s no way to predict where MBSs will go without referring to other markets, which nearly always are fairly reliable guides.
Rate lock recommendation
We suggest that you lock if you’re less than 30 days from closing. However, that doesn’t mean we expect you to lock while mortgage rates are actively falling fast. That advice is intended for more normal times.
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
This week’s calendar of economic reports includes some that can seriously affect markets. They’re published on two important days.
This morning’s consumer price index came in exactly as forecast. Watch out on Thursday for a slew of reports, including retail sales, productivity and industrial production.
Of course, any day can carry risk. Because any news story that can affect the American or global economies has the potential to move markets — and mortgage rates. And any economic report can trigger similar changes if it contains sufficiently shocking information.
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.
This week’s calendar
- Monday: Nothing
- Tuesday: July consumer price index (CPI) (actual +0.3%; forecast +0.3%), including core CPI (actual +0.3%; forecast +0.2%)
- Wednesday: Nothing
- Thursday: July retail sales (forecast +0.4%), industrial production (forecast +0.3%) and capacity utilization (forecast 78.0%). Also, for the second quarter of this year, productivity (forecast +1.5%) and unit labor costs (forecast +2.7%)
- Friday: July annualized housing starts (forecast 1.266 million new homes) and August consumer sentiment index (forecast 96.5 index points)
It’s a busy week, with today and Thursday especially interesting.
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.