What’s driving current mortgage rates?
Average mortgage rates increased yesterday more sharply than they have in a couple of weeks. But it wasn’t a huge jump. Mortgage News Daily put it at 6 basis points (a basis point is one-hundredth of 1 percent), which made it February’s third biggest rise. We did forecast upward movement and warned of the scenario that might produce a “bigger increase in mortgage rates than currently looks likely.”
So does this first sign of life in markets in weeks mean we should now expect more volatility ahead than we’ve seen recently? Possibly, but it’s too early to be certain. Today suggests it might be. But we’ll have to wait a while to be sure whether yesterday was a blip or the beginning of a trend.
The data below the rate table are mostly indicative of moderately higher rates in the short-term.
|Conventional 30 yr Fixed||4.667||4.678||+0.04%|
|Conventional 15 yr Fixed||4.167||4.186||Unchanged|
|Conventional 5 yr ARM||4.25||4.804||Unchanged|
|30 year fixed FHA||3.933||4.922||Unchanged|
|15 year fixed FHA||3.813||4.764||+0.13%|
|5 year ARM FHA||3.875||5.28||Unchanged|
|30 year fixed VA||4.542||4.736||+0.09%|
|15 year fixed VA||3.875||4.189||Unchanged|
|5 year ARM VA||4.063||4.558||+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
First thing this morning, markets looked set to deliver higher mortgage rates today. By approaching 10:00 a.m. (ET), the data, compared with this time yesterday, were:
- Major stock indexes were all higher soon after opening (good for mortgage rates). At one time, the Dow Jones was up more than 200 points
- Gold prices eased down again, standing at $1,309 an ounce compared to yesterday’s $1,318 and Wednesday’s $1,327. (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 held steady again at $57 a barrel (neutral for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries edged up to 2.74 percent, compared to yesterday’s 2.71 percent. That’s bad for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index held steady at 72 out of a possible 100. So it remains firmly in “greed” territory. This is bad 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
Unless something big intervenes during the day, it looks likely mortgage rates will be higher this evening.
Rate lock recommendation
Better-than-expected economic news triggered yesterday’s rise in mortgage rates. And there might be more of the same ahead. But it’s worth remembering that there’s plenty of potential for bad news in today’s headlines that could send those rates back down. In particular, any escalation in tensions between India and Pakistan or a premature break up of the U.S.-China trade talks could trigger significant falls.
Still, we’re today changing our float/lock recommendation. We now suggest that you lock if you’re less than 30 days from closing.
What’s going on this morning?
This morning’s mini-avalanche of economic reports was remarkably mixed. Personal incomes were way better than expected in December but seriously disappointing in January. Consumer spending in December was bad, showing the biggest decline in nine years. Core inflation held steady and was above forecasts but was still roughly in line with Fed targets. We provide figures for today’s other two key reports below. However, those were published too near our deadline for us to assess their impacts on markets.
Overall, the earlier numbers had, by nearly 10:00 a.m. (ET), failed to blunt yesterday’s upward momentum in mortgage rates. If anything, key markets were rising faster than they did at the same time yesterday.
So, if you’re still floating, do remain vigilant. Continue to watch key markets and news cycles closely. In particular, look out for stories that might affect the performance of the American economy. As a very general rule, good news tends to push mortgage rates up, while bad drags them down.
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
- LOCK 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.
- 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 (actual 225,000; 223,000 forecast), GDP for Q4 2018 (actual 2.6 percent; forecast +1.9 percent)
- Friday: personal income for both December and January were mixed (actual +1.0 percent in December; forecast +0.4 percent. And actual -0.1 percent in January; forecast +0.3 percent), December consumer spending (actual -o.5 percent; forecast -0.3 percent — the biggest decline in nine years), December core inflation (actual +0.2 percent; forecast +0.2 percent), Institute for Supply Management (ISM) manufacturing index for February (actual 54.2 percent; forecast 53 percent), February consumer sentiment index (actual 93.8 percent; 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.