What’s driving current mortgage rates?
Average mortgage rates today are little changed from yesterday’s. And not impressed by the ending of the government shutdown last Friday, mostly because it was only a temporary shutdown. If both sides don’t come to terms, we will be right back where we started in three weeks.
The Conference Board released its Consumer Confidence Index this morning, and it missed the mark — coming in at 120.2 instead of the expected 124. Less confidence in consumers, who drive two-thirds of the US economy, means less spending, economic cooling, and contributes to lower interest rates.
The Case-Shiller Home Price Index slowed, posting an annualized 5.2 percent increase following the previous month’s 5.5 percent. Slowing home price growth is also bad for the economy, but positive for interest rates.
|Conventional 30 yr Fixed||4.708||4.72||Unchanged|
|Conventional 15 yr Fixed||4.208||4.227||Unchanged|
|Conventional 5 yr ARM||4.313||4.92||-0.03%|
|30 year fixed FHA||4.0||4.99||Unchanged|
|15 year fixed FHA||3.813||4.764||Unchanged|
|5 year ARM FHA||4.188||5.429||+0.03%|
|30 year fixed VA||4.125||4.303||Unchanged|
|15 year fixed VA||3.938||4.252||Unchanged|
|5 year ARM VA||4.313||4.676||+0.01%|
|Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.|
Financial data affecting today’s mortgage rates
Today’s financial data are neutral-to-bad for short-term moves in mortgage rates.
- Major stock indexes opened mixed but slightly lower (neutral for mortgage rates)
- Gold prices increased again, this time by $4 to $1,308 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 increased $2 to $54 a barrel (bad for mortgage rates because energy prices play a large role
- in creating inflation)
- The yield on ten-year Treasuries remains at 2.74 percent. That’s neutral for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index moved up a point to a “greedy” 58 (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
Markets are still in limbo because relief from the government shutdown is only temporary and the US still does not have a budget. The results that finally end it and provide a budget will ultimately drive markets and rates higher, or, if things drag on too long, inaction will push the US into a recession. What that means now is that anyone looking at a lock/float decision soon can probably float a day or to if it will get them into a lower tier of pricing — for instance, a 15-day lock instead of a 30-day 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
- LOCK 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 heavy on economic reporting, a relief after all those unreported numbers during the government shutdown. And the reports are important, too. So mortgage rates could move at more than they did last week.
- Monday: Nothing
- Tuesday: Case-Shiller Home Prices (last month 5.5 percent annual increase), Consumer Confidence Index (predicted: 124)
- Wednesday: ADP Employment, Pending Home Sales, and a Fed Announcement
- Thursday: Personal Income (predicted: .5 percent increase), Consumer Spending (predicted .3 percent increase), and the Core Inflation Rate (predicted: .3 percent increase)
- Friday: Monthly Employment Report (predicted: 177,000 new jobs, unemployment rate remains at 3.9 percent)
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 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.