Mortgage rates today, October 23, plus lock recommendations

What's driving current mortgage rates?

Mortgage rates today will take their cues from movements in stocks, global economic events, Congressional jousting and random Tweets from the White House. While today's data (see below) mostly point to rising rates, we might not see changes, or may even get reductions, because lenders tend to price higher going into the weekend.

Mortgage rates today

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Today's data

Today's indicators mostly point to rising rates. However, rates may be the same as or better than Friday's, because lenders tend to price higher heading into the weekend.

• Major stock indexes all opened up at new highs (bad for rates), but fell back during early trading
• Gold prices fell $10 an ounce to $1,275  (bad for rates, because gold prices normally fall when the economy improves, and rise when it gets shaky -- and poorer economic conditions usually cause interest rates to move lower)
• Oil remains at $52 a barrel (neutral for rates)
• The yield on ten-year Treasuries fell back by one basis point (1/100ths of 1 percent) to 2.37 percent (good for rates, because mortgage rates tend to follow Treasuries)
• CNNMoney’s Fear & Greed Index stayed at 92, the "Extreme Greed" level. While technically a non-movement is neutral, this is still bad for rates, because "Extremely Greedy" investors tend to turn to stocks and from bonds and mortgage-backed securities. When everyone wants to sell their bonds, bond prices fall, which in turn causes rates to rise (see below)

Mortgage rates today are still very favorable for home buyers. The climate is highly-encouraging for real estate purchases.

This week

This week is pretty light on economic reporting. Many mortgage lock decisions may rest more on financial data and global political events than the results of analysts' reporting.

• Wednesday: Durable Good Orders for September (expected .6 percent increase), which tracks orders for big-ticket purchases. A higher increase  would be bad for rates, while a smaller one would be good. We also get September's New Home Sales, with 563,000 expected. More is bad for rates, and fewer is goood.
• Thursday: Weekly Jobless Claims, expected to come in at 233,000. More would be better for rates, fewer would be bad. We'll also get Pending Home Sales for September. Last month's fell 2.6 percent; an improvement could cause rates to rise.
• Friday: This is the biggest day, with the release of the Consumer Sentiment index. Experts predict that it will drop slightly to 100.8. A larger drop would be good for rates, an increase would be bad. We also get the 3rd quarter GDP, or Gross Domestic Product. This measures the country's economic output, and is expected to rise 2.7 percent. More would be bad for rates, less would be good.

Rate lock recommendation

There has been nothing that exciting in mortgage rates this week, but the market data indicate that rates could rise in the near-term. The lock decision mainly rides on your comfort with risk. Rates are good now if you want to "set it and forget it."

• 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

What causes rates to rise and fall?

Mortgage interest rates depend on 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 five percent interest ($50) each year. (This is called its “coupon rate.") That’s a pretty good rate today, so lots of investors want to buy it from you. You sell your $1,000 bond for $1,200.

When rates fall

The buyer gets the same $50 a year in interest that you were getting. However, because he paid more for the bond, his interest rate is not five percent.

• Your interest rate: $50 annual interest / $1,000 = 5.0%
• 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.

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