What’s driving current mortgage rates?
For a third consecutive day, average mortgage rates yesterday moved by the smallest measurable amount, in this latest case — as we predicted — downwards. And, for the fifth consecutive day, they alternated between up and down. In other words, they’re staying within an extraordinarily narrow range — even narrower than we were seeing earlier in the month.
It’s unlikely they’ll break free and head in a definite direction today. That’s because this morning’s releases of economic data were unexceptionally disappointing and barely moved markets. Publications tomorrow and Friday provide more opportunities for excitement. But even those may effectively pass unnoticed unless they contain shockingly good or bad news. One thing to look out for is hostilities between India and Pakistan, both of which are nuclear powers. Any significant escalation of the skirmishes seen late yesterday could have a big impact on U.S. mortgage rates.
The data below the rate table are mostly indicative of slightly higher rates in the short-term.
|Conventional 30 yr Fixed||4.538||4.549||Unchanged|
|Conventional 15 yr Fixed||4.083||4.102||-0.04%|
|Conventional 5 yr ARM||4.188||4.788||Unchanged|
|30 year fixed FHA||3.875||4.864||Unchanged|
|15 year fixed FHA||3.688||4.638||Unchanged|
|5 year ARM FHA||3.875||5.274||Unchanged|
|30 year fixed VA||4.455||4.649||Unchanged|
|15 year fixed VA||3.813||4.126||Unchanged|
|5 year ARM VA||4||4.529||+0.02%|
|Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.|
Financial data affecting today’s mortgage rates
Earlier, today’s market data were nearly all bad for mortgage rates, suggesting those rates might move up just slightly over the next 24 hours. By approaching 10:00 a.m. (ET), the data, compared with this time yesterday, were:
- Major stock indexes again headed downward first thing (bad for mortgage rates) but not sharply.
- Gold prices edged downwards, standing at $1,327 an ounce compared to yesterday’s $1,328. (This is 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 inched up to stand at $57 a barrel, compared with yesterday’s $56 (bad for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries returned to Tuesday’s 2.68 percent, up from from yesterday’s 2.65 percent. That’s bad for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index held steady at 70 out of a possible 100. It remains solidly in “greed” territory. This is neutral 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.
All those “bad” indicators might look scary. But the movements behind them remain tiny.
Rate lock recommendation
Markets are still making Groundhog Day look exciting. And, soon after they opened this morning, there was little indication they’re likely to shrug off their lethargy today.
Still, we continue to urge those who are floating to remain vigilant. It’s been more than two weeks since average mortgage rates moved outside a narrow band. That makes it more — not less — likely they’ll break out fairly soon. And markets could regain traction at any time.
So continue to watch key markets and news cycles closely. In particular, look out for stories that might impact the performance of the American economy, including those skrmishes between India and Pakistan. As a very general rule, float on particularly bad news and lock on especially good.
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
- FLOAT if closing in 30 days
- FLOAT if closing in 45 days
- FLOAT if closing in 60 days
MarketWatch’s economic calendar remains slightly chaotic in the wake of the recent government shutdown. Some numbers published this week are for earlier periods than would normally be the case, and others are still being delayed.
This morning’s data on advance international trade in goods (the trade deficit for goods) and factory orders were disappointing. However, neither of these are key indicators. So it’s unlikely they’ll provide the kick markets need to find their direction.
Tomorrow’s release of gross domestic product (GDP) numbers might be the focus of the week, but Friday’s avalanche of data also has the potential to move markets significantly. The latter contains some figures that are close to the GDP ones in importance. Markets generally factor in forecasts in advance. So it’s the difference between those forecasts and the actual numbers that are most likely to be disruptive. For example, you might think investors would be disappointed if tomorrow’s GDP figures were to come in at +2.2 percent. After all, the previous quarter had seen +3.4 percent growth. However, they’d actually be delighted. That’s because the current forecast is for +1.9 percent and markets are already priced based on that expectation.
- Monday: Nothing
- Tuesday: December housing starts (actual 1.078 million annualized; forecast 1.256 million units) and February consumer confidence index (actual 131.4; forecast 124.7)
- Wednesday: December advance international trade in goods (actual deficit -$79.5 billion; forecast -$74 billion) and December factory orders (actual +0.1 percent; forecast +0.6 percent)
- Thursday: weekly jobless claims (223,000 forecast), GDP for Q4 2018 (forecast +1.9 percent)
- Friday: personal income for both December and January (forecast +0.4 percent and +0.3 percent respectively), December consumer spending (forecast -0.3 percent), December core inflation (forecast +0.2 percent), Institute for Supply Management (ISM) manufacturing index for February (forecast 53 percent), February consumer sentiment index (forecast 95.5)
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 percent 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 percent).
- 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 percent 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 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.
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.