Curve

Mortgage rates today, March 6, 2020, plus lock recommendations

Peter Warden
The Mortgage Reports editor

Forecast plus what’s driving mortgage rates today

Average mortgage rates just inched lower yesterday. Yes, stocks closed down 3% and 10-year Treasury yields dipped below 0.9% for the first time ever. But those mortgage rates have become untethered from other markets: They may travel in the same direction but recently they’ve moved nothing like as quickly. Still, they remain at or very near all-time lows.

First thing this morning, markets looked set for another day of mayhem, perhaps similar to or even worse than yesterday’s. Overnight, the number of confirmed Covid-19 coronavirus cases breached 100,000 globally for the first time. Even better-than-expected employment numbers seemed unable to slow the downward momentum.

Program Rate APR* Change
Conventional 30 yr Fixed 3.375 3.375 Unchanged
Conventional 15 yr Fixed 3.438 3.438 -0.06%
Conventional 5 yr ARM 3.875 3.633 -0.04%
30 year fixed FHA 3.563 4.55 -0.69%
15 year fixed FHA 3.5 4.449 +0.13%
5 year ARM FHA 3 3.814 -0.05%
30 year fixed VA 2.938 3.115 Unchanged
15 year fixed VA 3 3.328 Unchanged
5 year ARM VA 3.375 3.134 -0.02%
Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

So we think that mortgage rates today might fall again. But this sort of volatility presents risks of sharp movements over brief periods. And, as always, events may overtake that prediction.

Market data affecting today’s mortgage rates

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

  • Major stock indexes were all appreciably lower. (Good 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 when indexes are lower
  • Gold prices rose to $1,685 an ounce from $1,659. (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 moved lower to $43.36 a barrel from $46.57 (Good for mortgage rates* because energy prices play a large role in creating inflation and also point to future economic activity.) 
  • The yield on 10-year Treasurys fell to 0.70% from 0.93%. A year ago, it was at 2.69%. (Good for mortgage rates.) More than any other market, mortgage rates tend to follow these particular Treasury bond yields
  •  CNN Business Fear & Greed index fell to 6 from 11 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

*A change of a dollar on gold prices or a cent on oil ones is a tiny fraction of 1%. So we only count meaningful differences as good or bad for mortgage rates.

Today might be a better day for mortgage rates. But the gap between those rates and other markets mean sharp falls are less likely — or at least less reliable. And, with such excitable investors, nothing’s certain.

This week

Virus still the biggest factor for mortgage rates

The Wuhan coronavirus (Covid-19, standing for Coronavirus disease 2019) was certainly behind the chaos seen in global markets since Feb. 20. The virus now has a confirmed presence on five continents and in 95 countries, up from 87 yesterday. Here at home, the US has 233 cases, up from 162 yesterday.

China, South Korea, Japan (including the Diamond Princess cruise ship harbored in Yokohama, Japan), Italy and Iran each has infections in the thousands. And 13 other countries have them in the hundreds. China, Japan and Italy each ranks among the world’s top-10 economies, while South Korea occupies the No. 11 slot.

While markets are made up of people who share the fear and empathy of the rest of humanity, their focus isn’t directly on Covid-19’s health implications. Their concern is the virus’s economic consequences, which are a byproduct of the medical ones.

Worldwide worries

Data suggest those economic consequences are likely to turn out to be severe. This morning, a poll by Reuters of economists based in China found:

The coronavirus likely halved China’s economic growth in the current quarter compared with the previous three months, more severe than thought just three weeks ago and triggering expectations for earlier interest rate cuts

And, already, several other governments and central banks are forecasting reduced gross domestic product (GDP) growth for their economies. Indeed, on Monday, the Organization for Economic Cooperation and Development (OECD) slashed its 2020 global growth forecasts to 1.5%, almost half the 2.9% it was expecting before Covid-19 took hold. It also warned that the virus could “plunge several countries into recession this year,” according to The Guardian.

The dangers of global connectedness

Globalization has brought much more sophisticated and diverse supply chains. So, for instance, if you want to build a car in America, you’ll likely rely on parts from several other nations. And that means you’ll be vulnerable to any disruption in those other countries.

As long ago as Feb. 4, Bloomberg noted:

China is the largest exporter of intermediate manufactured goods that can be resold between industries or used to produce other things, so its problems quickly reverberate through global supply chains. Indeed, global reliance on those products doubled to 20% from 2005 to 2015.

But it’s not just China. If global reliance on it for intermediate goods is 20%, the rest of the world accounts for 80%. Reinforcing that point, on Feb. 24, The Wall Street Journal carried the headline, “World Economy Shudders as Coronavirus Threatens Global Supply Chains.”

Central banks face problems

Traditionally, central banks intervene during troubled times to prop up their economies. And it seems certain most important ones will in response to Covid-19. The Bank of Japan, European Central Bank (ECB) and Bank of England have all signaled a willingness to act, presumably with rate cuts, in recent days.

But when the Federal Reserve did so on Tuesday morning, markets responded badly to a shock, half-point cut in interest rates. They seemed to suspect that it was acting precipitously. Was it bending to political pressure from the White House or was it overreacting to stock market falls? More scarily yet, did it know things that investors didn’t?

That suggests central banks will have to tread warily when intervening. But few of them have much room to maneuver anyway. They already have exceptionally low rates (the ECB’s is currently -0.5% — yes, a negative rate) so are limited in their use of that traditional stimulus tool. And quantitative easing (sometimes compared to printing money) brings its own dangers.

Some economists have been warning for years about the dangers of keeping interest rates artificially low during times of good economic growth. They feared that would limit options when the next recession loomed. We may be about to discover whether they were right. And, if so, the extent to which their fears were justified.

Underestimating the economic harm

Similarly worryingly, there are signs that economists and analysts have been underestimating the virus’s likely economic impacts. Last Saturday, China’s official purchasing managers’ index (PMI), which is an important indicator of economic activity, came in at 35.7 index points for February.

But analysts polled by Reuters had expected it to be 46.0, down from 50 in January. February’s actual figure was a record low for modern China, and more granular figures within the index painted an even grimmer picture for manufacturing production and new orders.

Arguably, the single thing investors fear most is uncertainty. And if they can’t rely on analysts and economists to provide them with realistic assessments of what’s happening, their urge to put their money into safe havens is likely to be unnecessarily intense.

Covid-19 likely to spread within US

The Centers for Disease Control and Prevention (CDC) warned last Tuesday that the coronavirus would probably spread within American communities. Dr. Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases, told journalists:

It’s not so much of a question of if this will happen anymore but rather more of a question of exactly when this will happen. … We are asking the American public to prepare for the expectation that this might be bad. … Disruption to everyday life might be severe.

The following day, in a news conference, President Donald Trump provided a more upbeat take on the danger posed. “We’re very, very ready for this,” he said, adding that the risk to the US was “very low” and that he expected the outbreak to end swiftly. He announced that Vice President Mike Pence will lead the administration’s response.

How scary are the health implications?

Overnight figures show Covid-19 has been confirmed in 100,696 (up from 96,902 yesterday) cases around the world, and has killed 3,412 (up from yesterday’s 3,308). Yes, those figures — assuming they’re accurate — show it to be way more infectious than others, such as SARS and MERS. But they also reveal a much lower death rate (3.4%) so far among those infected than that of either SARS (nearly 10%) or MERS (35%).

And that crude death rate calculation is almost certainly too high. Some experts are predicting a final mortality rate of around 1%. But it’s too soon to make definitive judgments.

Mortgage rate volatility ahead?

In coming days and weeks, volatility will likely be driven by changing news cycles. Good news about the virus (and consequently its economic effects) should normally see mortgage rates rise while bad news typically pushes them down. But such news isn’t always reliable.

Scientists are still trying to reach a consensus over many medical aspects of the virus. And governments are increasingly trying to craft narratives that head off panic over both the health and economic consequences of the epidemic. And not all of them are scrupulous about avoiding fake news. For example, some remain suspicious of China’s and Iran’s numbers.

So markets that bend with every passing news cycle may turn out to be “lively,” to say the least. Still, our recent warning that “mortgage rates could bounce up and down like Tigger on E” has so far turned out to be wrong, at least until this week. But it’s too soon to rule out the Tigger scenario in the future.

Economic reports this week

Last week, some quite important economic reports were effectively ignored by markets as the coronavirus monopolized their attention. The same has happened this week, although Super Tuesday likely had an impact.

Today’s official, monthly employment situation report was the most important report this week. And the number of new jobs was higher than forecast. But they weren’t good enough to distract investors.

Of course, more normally, any economic report can move markets, as long as it contains news that’s shockingly good or devastatingly bad — providing that news is unexpected.

Forecasts matter

That’s because 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.

And 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

This week’s calendar for economic reports comprises:

  • Monday: ISM manufacturing index (actual 50.1%; forecast 50.5%) for February, and January’s construction spending (actual +1.8%%; forecast +0.9%)
  • Tuesday: Nothing. But motor vehicle sales for February will emerge during the day (forecast 16.8 million vehicles)
  • Wednesday: February ISM nonmanufacturing index (actual 57.3%; forecast 54.8%) and ADP employment report (actual 183,000 new private-sector jobs; no forecast but 291,000 in January)
  • Thursday: Quarter 4 of 2019 productivity (actual +1.2%; forecast +1.3%) and unit labor costs (actual +0.9%; forecast +1.3%) Plus January factory orders (actual –0.5%; forecast -0.2%)
  • Friday: February employment situation report, including nonfarm payrolls (actual 273,000 new jobs; forecast 165,000), unemployment rate (actual 3.5%; forecast 3.5%) and average hourly earnings (actual +0.3%; forecast +0.3%). Plus January’s trade deficit (actual -$45.3 billion; forecast -$45.9 billion)

As it turned out, none of these reports was sufficiently great or awful to cut through markets’ viral obsession.

Today’s drivers of change

What 2020 might hold

The year 2019 ended with most stock indexes at exceptional or record highs. And investors had one of the best 12 months in living memory. So will 2020 bring more of the same? Well, Covid-19 has already eaten up this year’s gains in most markets — and, for some indexes, much or all of last year’s.

But, even absent the virus, few thought the good times would continue for long. Still, in January, most economists, analysts and observers seemed to believe we were looking at an OK year.

Certainly, fewer were expecting a US recession during 2020 than was the case a few months earlier. When Reuters polled 100 economists in January, about 20-25% thought one was coming this year and around 30-35% expected one within the next two years. And February’s poll “found the overall U.S. economic growth outlook for this year unchanged compared with last month.”

But that’s not great news. Because January’s survey saw a consensus expectation that the US economy would “coast” this year, “with annualized growth expected to have barely moved from the latest reported rate of 2.1%” through to the second quarter of 2021. 

The Federal Reserve’s role

And several financial reviews of 2019 warned that stock market rises were largely being fueled by the Federal Reserve’s actions rather than underlying economic strength, though others dispute that.

The suggestion was that some investors see stocks as a one-way bet. If anything goes wrong (virus, economic slowdown … whatever), the Fed will ride to the rescue with lower interest rates and limitless stimulus packages. Tuesday’s cut suggests central banks may be unable to deliver the panacea on which such faith is based. And Covid-19 might kill the perception they ever could.

But this theory about stock market investors banking on the Fed to rescue them would certainly explain why major indexes were regularly hitting record highs amid so-so economic data and corporate results. On Feb. 16, CNN Business quoted Bleakley Advisory Group chief investment officer Peter Boockvar:

I think the stock market is just under this belief that no matter what comes our way the Fed is going to save us. I honestly believe it’s as simplistic as that.

Still, Fed-driven market growth this year may be more modest (if it exists at all) than in 2019.

Don’t take forecasts too seriously

Just don’t take such forecasts too seriously. And 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.

Real-world forecasts also gloomy

On Jan. 20, global accountancy firm PwC unveiled its 23rd annual survey, which this year polled almost 1,600 chief executive officers (CEOs) from 83 countries. Again, that was before Covid-19 became the threat we now perceive it to be. But a whopping 53% of respondents predicted a decline in global GDP growth in 2020. That was up from 29% in 2019 and 5% in 2018.

Who was most pessimistic? Those from North America, where 63% of CEOs expected lower global growth. And only 36% of American CEOs were positive about their own companies’ prospects for the year ahead. Again, that was many fewer than in 2019. Chair of the PwC network Bob Moritz issued a statement:

Given the lingering uncertainty over trade tensions, geopolitical issues and the lack of agreement on how to deal with climate change, the drop in confidence in economic growth is not surprising — even if the scale of the change in mood is. These challenges facing the global economy are not new — however the scale of them and the speed at which some of them are escalating is new.

Lower mortgage rates ahead?

Around New Year, it wasn’t hard to find experts who were predicting that mortgage rates could plumb new depths in 2020. And it looks as if they’re being proved right.

However, few of them predicted that a viral epidemic would be the cause of plunging rates. So their kudos is limited.

And we’re yet to see how Covid-19 will play out. What we do know is that mortgage rates are no longer tracking yields on 10-year Treasurys as closely they usually do. And that means the volatility in wider markets is muted for those rates.

And don’t forget John Kenneth Galbraith’s observation.

Rate forecasts for 2020

It may be a mistake to rely on experts’ forecasts. But there’s nothing wrong with taking them into account, appropriately seasoned with a pinch of salt. After all, who else are we going to ask when making plans?

Fannie Mae, Freddie Mac and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates. And here are their latest forecasts for the average rate for a 30-year, fixed-rate mortgage during each quarter (Q1, Q2 …) in 2020. Fannie’s and the MBA’s were published in February, but Freddie’s latest forecast came out in December:

Forecaster Q1 Q2 Q3 Q4
Fannie Mae 3.5% 3.4% 3.4% 3.4%
Freddie Mac 3.8% 3.8% 3.8% 3.8%
MBA 3.6% 3.7% 3.7% 3.7%

Freddie Mac reckons that particular mortgage rate averaged 3.9% during 2019. So, if any of those experts’ forecasts turn out to be right, it could be another good year for new mortgage borrowers — and for existing ones who want to refinance.

Negative mortgage rates

Just don’t expect zero or negative mortgage rates in America anytime soon. Still, they’re not unthinkable later this year or next, especially if the effects of Covid-19 force the Fed to make its rates negative. But we’ve a long way to go before that becomes a realistic prospect.

Already, Denmark’s Jyske Bank is offering its local customers a mortgage with a nominal interest rate of -0.5%. Yes, that’s minus 0.5%. However, after fees, that’s likely to be closer to a free or incredibly cheap mortgage than one that actually pays borrowers.

But don’t think there isn’t a wider price to pay for ultralow mortgage rates. On Dec. 18, The New York Times reported that, in much of Europe, these are “driving a property boom that is pricing many residents out of big cities and causing concern among policymakers.” And many fear a bubble that could end badly.

Trade

For now, trade may be on the back burner for markets. That’s because, on January 15, President Donald Trump signed a phase-one trade agreement with China’s Vice-Premier Liu He.

Although the White House remains proud of that deal, critics are less sure. They point to weaknesses that can’t be resolved until a phase-two deal. And one of those is unlikely until 2021.

Limited economic boost

Following its January poll of economists, Reuters chose to quote Janwillem Acket, who’s chief economist at Julius Baer, as representative of wider opinions:

The recent Phase 1 deal between the U.S. and China suggests decreasing odds of an escalation to a full-blown trade war. However, the deal so far is not comprehensive enough to significantly boost economic momentum.

And, of course, the impact of Covid-19 is making trade disputes look like a sideshow. Indeed, as countries scramble to prop up global trade, they may become irrelevances.

Rate lock recommendation

We suggest

We suggest that you lock if you’re less than 30 days from closing. Yes, you’d have made losses if you’d taken that advice in recent weeks. But we’re looking at a risk assessment here: Do dangers outweigh rewards?

And there might easily be a very sharp bounce if and when Covid-19’s risks are perceived to fade, or when markets decide they’ve gone too far in pricing in the danger it poses. Indeed, some loan officers are expecting one soon and are urging clients to lock in line with our advice.

However, none of this means we expect you to lock on days when mortgage rates are actively falling. That advice is intended for more normal times.

Only you can decide

Of course, financially conservative borrowers might want to lock immediately, almost regardless of when they’re due to close. After all, current mortgage rates are at or near record lows and a great deal is assured.

On the other hand, risk-takers might prefer to bide their time and take a chance on future falls. But 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. Make sure your lender is ready to act as soon as you push the button. And continue to watch key markets and news cycles closely. In particular, look out for stories that might affect the performance of the American economy, most especially those that concern the coronavirus. 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.

My advice

Bearing in mind professor Galbraith’s warning, I personally 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

But it’s entirely your decision.

» MORE: Show Me Today’s Rates (March 6, 2020)

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 (March 6, 2020)

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.