Curve

Mortgage rates today, September 12, 2019, plus lock recommendations

Peter Warden
The Mortgage Reports editor

What’s driving mortgage rates today?

Average mortgage rates unexpectedly held steady yesterday. So you still have to go back to Aug. 13 to find as high a rate. Markets on Wednesday were pulled two ways: more optimism over US-China trade, but also anticipation of a key meeting of the European Central Bank (ECB, the eurozone’s equivalent of our Fed), which finished earlier this morning.

That tension might continue today. Last night, President Donald Trump fueled trade optimism when he delayed implementing some new tariffs for two weeks (pressure for higher mortgage rates). And that meeting of the ECB cut rates and reintroduced a stimulus program (pressure for lower rates). Today’s consumer price index was largely neutral for rates. All this means confusion and unpredictability as markets digest its implications.

As a snapshot at 10 a.m. (ET), mortgage rates today look likely to hold steady or inch lower. But that could change as sentiment becomes clearer. And, as always, events might overtake that prediction.

Program Rate APR* Change
Conventional 30 yr Fixed 4.063 4.063 -0.06%
Conventional 15 yr Fixed 3.75 3.75 Unchanged
Conventional 5 yr ARM 4.5 4.323 +0.11%
30 year fixed FHA 3.375 4.36 Unchanged
15 year fixed FHA 3.375 4.324 Unchanged
5 year ARM FHA 3.625 4.726 +0.07%
30 year fixed VA 3.313 3.482 -0.06%
15 year fixed VA 3.313 3.622 Unchanged
5 year ARM VA 3.563 3.896 +0.05%
Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

» MORE: Check Today’s Rates from Top Lenders (September 12, 2019)

Financial data affecting today’s mortgage rates

First thing this morning, markets looked set to deliver mortgage rates today that are unchanged or a little lower. By approaching 10 a.m. (ET), the data, compared with this time yesterday, were:

  • Major stock indexes were all moderately 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 rose to $1,523 an ounce from $1,498. (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 fell to $54 a barrel from $58. (Good for mortgage rates, because energy prices play a large role in creating inflation)
  • The yield on 10-year Treasurys inched down to 1.72% from 1.73%. (Good for mortgage rates.) More than any other market, mortgage rates tend to follow these particular Treasury bond yields
  •  CNNMoney’s Fear & Greed Index climbed to 64 from 56 out of a possible 100 points. (Bad 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

So it might be a quiet day for mortgage rates.

Verify your new rate (September 12, 2019)

This week

Yet again, this week’s calendar of economic reports starts quietly and builds to a crescendo at the end of the week. So today saw the publication of the consumer price index and a meeting of the European Central Bank’s (ECB — the eurozone’s equivalent of our Federal Reserve) monetary policy committee. And tomorrow brings retail sales figures and the consumer sentiment index.

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.

Forecasts matter

Markets tend to price in analysts’ consensus forecasts (below, we mostly 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.

This week’s calendar

  • Monday: Nothing
  • Tuesday: July Job openings (actual 7.2 million openings; 7.3 million in June)
  • Wednesday: August producer price index (actual +0.1%; forecast 0.0% — unchanged)
  • Thursday: August consumer price index (CPI) (actual +0.1%; forecast +0.1%), including core CPI (actual +0.3%; forecast +0.2%). Plus a meeting of the ECB’s monetary policy committee, which satisfied markets’ hopes
  • Friday: August retail sales (forecast +0.1%), including retail sales ex-autos (forecast +0.1%). Plus September consumer sentiment index (forecast 91.4 index points)

This is another week that builds to a climactic Thursday and Friday.

Buy points?

Earlier this week, Mortgage News Daily (MND) made an excellent case for exploring the purchase of discount points. With these, you pay extra on closing to buy yourself a lower mortgage rate.

The under-the-hood mechanics of the market that trades in mortgage-backed securities (more on that, below) mean that there are times when those discount points are more attractively priced than at others. And now is one of those favorable times, according to MND. It says:

Notably, a conventional 30yr fixed rate of 3.75% is right in the neighborhood of what many borrowers would be quoted today. That said, for many lenders 3.75% makes no sense. The reason has to do with structure of the secondary mortgage market. Long story short, it only costs the average lender a tiny bit more to offer 3.625%.

So why not call your lender to see how much discount points would cost you? Then use one of The Mortgage Reports mortgage calculators to model your potential savings. And only buy them if you get a good deal. After all, you’ve nothing to lose by checking.

Today’s drivers of change

US-China trade dispute

Last night, President Trump announced that he’d be delaying the implementation of a new wave of tariffs on imports from China. He described the move as “a gesture of good will.” The delay was only for two weeks. However, it will likely cheer markets and create upward pressure on mortgage rates.

That followed last Wednesday evening’s announcement of a resumption in the US-China trade talks. They’re scheduled to begin again in Washington DC in October. And markets are pinning their hopes on those to resolve what they perceive as a damaging dispute. Those hopes explain last Thursday’s dramatic movements in markets, including a sharp rise in mortgage rates, and some subsequent changes.

Those announcements followed a new round of American tariffs on Chinese goods that became operative on Sept. 1. The Peterson Institute for International Economics reckons that brought the average US tariff on imports from that country to 21.2%, up from 3.1% when President Trump was inaugurated.

Pain

This is causing some pain to both sides. China’s slipped to third place from first in the list of America’s trading partners. Meanwhile, researchers from University College London and the London School of Economics calculate the average American family will pay about $460 a year in higher prices as a result of the trade war’s tariffs.

And, earlier this week, The New York Times reported that, in August, China’s exports to the U.S. fell 16% to $44.4 billion, while its imports of U.S. goods fell 22% to $10.3 billion.

At the same time, 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. The US has proposed more tariffs on EU goods, though those are yet to be implemented.

How trade disputes hurt

All this has been fueling uncertainty in markets. And that, in turn, is creating volatility. Many of the recent wild swings in mortgage rates, bond yields, stock markets, and gold and oil prices have been down to fears (and occasionally hopes) over this trade dispute.

Markets hate trade disputes because they introduce uncertainty, dampen trade, slow global growth and are disruptive to established supply chains. President Trump 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, at least, plateauing.

Federal Reserve

Markets are fairly confident that the Federal Reserve will deliver a further rate cut on Sept. 18 following the next meeting of the Federal Open Market Committee (FOMC). That’s the Fed body that sets the organization’s own interest rates — and therefore many others.

Their confidence was bolstered last Friday when Fed Chair Jerome Powell made a speech in Zurich. “We’re going to continue to act as appropriate to sustain this expansion,” he said. Although that was far from a solid guarantee, the meaning behind the remarks came across clearly enough.

However, the minutes of the last meeting of the FOMC revealed that its members were much more divided than many had previously assumed. “A couple” wanted a bigger cut. But “several” wanted no change at all.

On Aug. 22, Philadelphia Fed President Patrick Harker and Kansas City Fed President Esther George both said publicly that they wouldn’t support further cuts. And, on Sept. 4, The Wall Street Journal quoted Boston Fed President Eric Rosengren saying the “relatively strong” US economy requires no further cuts.

Fed and future rates

In spite of this, most observers, analysts and investors are expecting a further cut next Wednesday. Indeed, some are predicting a half-percentage-point rate cut then, rather than the usual quarter-point change.

And there’s been a widespread expectation that a September cut will be the first in a series, with as many as three between now and the end of the year. But the level of resistance among FOMC members at July’s meeting may now put that level of slashing in doubt.

Yesterday, President Trump tweeted the accusation that some Fed officers are “boneheads.” And his tweets included this:

The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt.

To be clear, the Fed does not directly determine mortgage rates — except those for existing adjustable-rate loans. However, it does greatly influence the market that does.

Treasurys and mortgage rates

Why are mortgage rates currently so often out of sync with the markets they usually shadow? After all, markets are generally interdependent.

During economically worrying times (the opposite happens when confidence is high), investors sell stocks because they fear a downturn. But they have to put their money somewhere. So they buy lower-yield but safer “risk-off” investments, such as US Treasurys, gold and mortgage-backed securities (MBSs).

MBSs are bundles of individual mortgages, wrapped up within a bond-like “security” (a tradable financial asset) and sold on a secondary market. And, the more investors want to buy them, the lower the mortgage rate you’re likely to be offered.

Markets in sync

Usually, the flows of money are fairly even across risk-off markets. So you can typically assume that gold and bond prices will go up or down roughly in line both with each other and inversely with falling or rising stock prices.

And the same applied to MBSs. In fact, the relationship between 10-year Treasury yields and mortgage rates was for years so close that many (wrongly) assumed the two were formally linked.

Why the change?

But nobody could make that mistake now. For example, on Aug. 23, those yields plunged from 1.60% to 1.54% but mortgage rates only edged down.

So why are the MBSs that actually determine mortgage rates drifting apart from risk-off investments generally and those Treasury yields in particular? There are three main reasons:

  1. Investors are concerned they’re not being rewarded sufficiently for the extra risk they shoulder when they buy MBSs rather than Treasury bonds. In particular, the Treasury doesn’t welsh or redeem its bonds early, making those ultrasafe and predictable. Meanwhile, mortgage borrowers often refinance and occasionally default
  2. Some are worried about the possibility of the government reforming Fannie Mae and Freddie Mac. Last Friday, the administration published a 53-page proposal. But National Mortgage Professional magazine described that as “mostly a summary of potential strategies”
  3. The things that spook or please investors in Treasury bonds don’t always apply to mortgage-backed securities

And another factor affects mortgage rates rather than MBSs themselves. Mortgage lenders are distrustful of extreme volatility and often take a wait-and-see stance before adjusting the rates they offer

Forecasting issues

Those Treasury yields are one of the main indicators (see the “financial data” list above for others) we use to make predictions about where rates will head. And, with those tools more unreliable than usual, we sometimes struggle to get our daily predictions right. Until the relationship between rates, yields and other indicators gets back in sync, you should bear that in mind.

“Inverted yield curve” is easy to understand

You’ve probably read a lot recently about the “inverted yield curve.” But it’s the sort of impenetrable jargon that most of us skip over on the grounds life’s already too short.

But hold on! It’s actually easy to understand. It simply means that short-term Treasury bills, notes and 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. Frequently, in the past, when the yield curve has inverted, a recession has soon followed. That doesn’t mean it will this time. But it’s a bit worrying.

Critical yield curve inverted

Any time yields are lower on longer-term bonds than shorter ones, that’s an inversion. But it’s when the 2- and 10-year Treasury yields (the return you get on US government securities) invert that has proved to be the most reliable — close to infallible — predictor of recessions.

And those two hadn’t crossed the line since June 2007 — until mid-August. Since then, it’s crossed and recrossed it several times.

Unless you’re in hiding, you can’t have missed the resulting doom-laden media reports, full of dire predictions. In fact, right now, there are few other noticeable signs of a recession looming. And some say fears are overblown.

What is Brexit?

Brexit is Britain’s exit from the European Union after 46 years of membership. New UK Prime Minister Boris Johnson currently seems firm about his country ceasing to be an EU member state on October 31.

Johnson insists that Brexit 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 European and global economies.

Yesterday, the Johnson administration published under protest a government impact assessment of what a no-deal scenario might look like. It predicted public disorder, disruption at ports, rising prices and shortages of some foods and medicines.

Brexit’s political dramas

Politically, last week was a terrible one for Johnson. He suffered multiple defeats in parliament. And a law was enacted on Monday that prohibits a no-deal Brexit. It mandates the prime minister to request from the EU an extension to the current Halloween deadline until Jan. 31, 2020, allowing more time to reach a new deal or to hold a second referendum or general election — or all three. Such an election within weeks now looks highly likely.

But, on the day it was passed, Johnson threatened to defy the new law by refusing to ask the EU for an extension. That would be unprecedented and could even see the prime minister in jail.

Brexit in context

Britain’s currency has been yo-yoing as markets’ perceptions of the likelihood of a no-deal Brexit change. Every time markets see it as a real risk, the British pound sterling falls sharply. It rises when that risk is seen to recede.

However, worse for the rest of the world, all this could be happening when many European economies are in trouble. For example, during the last quarter, gross domestic product (GDP) in EU powerhouse Germany shrank by 0.1% compared with the previous quarter. If the current one goes the same way, Germany will technically be in recession. And the UK’s economy is already in even worse shape. Its GDP fell 0.2% that quarter.

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 (or should that be Jan. 31?) deadline.

Lower rates ahead?

Last Friday, CNBC ran a studio interview with Bob Michele, CIO of J.P. Morgan Asset Management. In that interview, Michele predicted that the yield on 10-year Treasurys would hit zero before the end of this year.

On the same day, Lawrence Yun, the National Association of Realtors® chief economist said he could see a new record-low mortgage rate of 3.3% — also before the end of this year.

By all means, take cheer from these predictions. But never forget a remark made by the late Harvard economics professor John Kenneth Galbraith:

The only function of economic forecasting is to make astrology look respectable.

And the last few days of rises suggest an uneven path, even if those prognosticators are ultimately proved right.

Negative mortgage rates

Just don’t expect zero or negative mortgage rates in America anytime soon. Still, they’re not unthinkable within a year or two. Writing for The Mortgage Reports, Peter Miller described a Danish bank that is already charging its customers a negative mortgage rate:

A Danish bank called Jyske Bank is offering a mortgage that pays the borrower.

“Jyske Realkredit is ready with a fixed-rate mortgage with a nominal interest rate of minus 0.5%,” says the bank.

“Yes, you read right,” it continues. “You can now get a fixed-rate mortgage with a maturity of up to 10 years, where the nominal interest rate is negative.” (Of course, the bank warns, there will be fees, so you may not actually get a return.)

Read the full report: Negative mortgage rates are real — and they might come to the U.S.

Rate lock recommendation

We suggest

On Monday, we changed back our rate lock recommendation to reflect what appears to be a new mood in markets. So we now suggest that you lock if you’re less than 30 days from closing. Some professionals are recommending locking even further out from closing and we wouldn’t argue with them.

However, that doesn’t mean we expect you to lock on days when mortgage rates are actively falling fast. (Remember them?) 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

» MORE: Show Me Today’s Rates (September 12, 2019)

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.

Show Me Today’s Rates (September 12, 2019)

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.