What’s driving current mortgage rates?
Average mortgage rates today are mostly lower, as yesterday’s financial data predicted. However, conditions are rapidly changing and you should stay in contact with your lender if you’re still floating.
We did get a couple of reports, and one was surprising enough that it may have some influence on mortgage interest rates. Some market watchers consider payroll processing company ADP’s monthly employment numbers to have some predictive value for the economy. If ADP’s employment numbers are higher, tomorrow’s government Employment Situation Report may also be stronger than previously expected. That would be bad for mortgage rates.
While analysts had expected the addition of 180,000 jobs, the actual number was huge — 271,000.
In addition, the Institute for Supply Management (ISM) released its moderately-important Manufacturing Index for December, estimated to come in at 57.9, came in at 54.1. That indicates an unexpected slowing in manufacturing, which would be good for interest rates.
You can see why investors and lenders are cautious right now.
|Conventional 30 yr Fixed||4.625||4.636||-0.04%|
|Conventional 15 yr Fixed||4.208||4.227||-0.04%|
|Conventional 5 yr ARM||4.25||4.886||-0.02%|
|30 year fixed FHA||4.583||5.592||Unchanged|
|15 year fixed FHA||3.688||4.638||-0.06%|
|5 year ARM FHA||3.938||5.347||+0.01%|
|30 year fixed VA||4.625||4.82||-0.04%|
|15 year fixed VA||3.875||4.189||Unchanged|
|5 year ARM VA||4.063||4.603||+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
Oil is higher, but stocks and the 10-year Treasury yield are favorable this morning. Still looking good for borrowers.
- Major stock indexes are down (good for mortgage rates)
- Gold prices increased yet again (this time by $4 to $1,290 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 rose $2 to $47 a barrel (bad for rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries fell 3 basis points (3/100th of 1 percent) to 2.64 percent. That’s very nice for borrowers because mortgage rates tend to follow Treasuries, and this is the lowest reading in months
- CNNMoney’s Fear & Greed Index remains at 13 (out of a possible 100). That score is in the “extreme fear” range. Good 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
Today’s mortgage rates are very nice if you want to lock in. And you can probably float a day or so if that will get you into a better tier (for instance, drop from a 45-day lock to a 30-day, or a 30-day into a 15-day lock). If closing soon, current rates are attractive enough to feel good about.
Lately, rates have defied experts’ long-term expectations of higher rates overall.
HOWEVER, TOMORROW’S MONTHLY EMPLOYMENT SITUATION REPORT, IF UNEXPECTEDLY FAVORABLE FOR JOBS, COULD CHANGE EVERYTHING IN A HEARTBEAT. IF YOU HAVE A WEAK HEART, CONSIDER LOCKING TODAY. ANALYSTS CURRENTLY EXPECT THE UNEMPLOYMENT RATE TO FALL TO 3.6 PERCENT AND INCOME TO INCREASE.
In a rising rate environment, 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. If you are weeks away from closing on your mortgage, that’s something to consider. 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
- LOCK if closing in 30 days
- FLOAT if closing in 45 days
- FLOAT if closing in 60 days
This week is holiday-shortened due to the Christmas holiday. Expect light trading and few reports.
- Monday: nothing
- Tuesday: nothing
- Wednesday: nothing
- Thursday: ISM Manufacturing Index for December, ADP Employment
- Friday: Monthly Employment Situation Report
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.