What’s driving current mortgage rates?
Average mortgage rates today, except for some government-backed programs, did not change. And even the FHA and VA programs didn’t move much. Because most of the important economic reports have been held back by the government shutdown, interest rates are largely in limbo. Traders and lenders have little information on which to base their decisions.
December’s Existing home sales report, which comes from the National Association of Realtors and is unaffected by the shutdown, showed that home sales plunged from last months’s annualized 5.32 million to 4.99 million, Analysts had predicted 5.1 million. This indicates economic slowing and also lower demand for mortgages.
That’s good for borrowers and mortgage rates.
|Conventional 30 yr Fixed||4.708||4.72||Unchanged|
|Conventional 15 yr Fixed||4.208||4.227||Unchanged|
|Conventional 5 yr ARM||4.375||4.944||+0.01%|
|30 year fixed FHA||4.0||4.99||Unchanged|
|15 year fixed FHA||3.75||4.701||Unchanged|
|5 year ARM FHA||4.125||5.404||+0.02%|
|30 year fixed VA||4.063||4.24||-0.06%|
|15 year fixed VA||3.938||4.252||Unchanged|
|5 year ARM VA||4.313||4.676||+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
Most of today’s financial data signal lower mortgage rates.
- Major stock indexes opened lower (good for mortgage rates)
- Gold prices edged up $1 to $1,281 an ounce. (This is 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 $3 to $51 a barrel (very good for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries dropped 4 basis points (4/100th of 1 percent) to 2.74 percent. That’s very good news for borrowers because mortgage rates tend to follow Treasuries, and this is the lowest reading in months
- CNNMoney’s Fear & Greed Index moved up 1 points to a neutral 52 (out of a possible 100). The upward direction of movement is bad for 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.
Rate lock recommendation
Rates appear to be static, and with the government shutdown, investors are wary. Today’s information (such as it is) does show that borrowers probably don’t need to worry about rate increases, and may see reductions later today and tomorrow. I am taking a less-conservative stance today, but if you’re risk-averse and today’s rates are acceptable to you, you might want to lock.
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
- FLOAT if closing in 15 days
- FLOAT if closing in 30 days
- FLOAT if closing in 45 days
- FLOAT if closing in 60 days
This week is light on economic releases, and mortgage rates will likely move based on political happenings, such as the ongoing government shutdown, a trade war with China, and negotiations with Congress over the federal budget and the proposed border wall.
- Monday: Nothing
- Tuesday: December Existing home sales (last month 5.32 mil)
- Wednesday: Nothing
- Thursday: Leading economic indicators for December (previous month .2 percent increase)
- Friday: Durable Good Orders and New Home Sales (but only if not delayed by the government shutdown)
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 now 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.
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.