What’s driving current mortgage rates?
Average mortgage rates were very slightly down again yesterday. You have to go back nearly 15 months to find lower ones.
News from London again caused some late movement. In a vote, the UK parliament at least theoretically made the most damaging form of Brexit (Britain quitting the European Union, or EU) less likely. But it soon emerged that the country remains hopelessly mired in this mess.
The data below the rate table are indicative of mortgage rates rising a little or holding steady in the short-term. But we’ve been here before, on each of the last three mornings. Indicators start off negative only to turn positive later. And there are more votes in London this afternoon.
|Conventional 30 yr Fixed||4.542||4.553||Unchanged|
|Conventional 15 yr Fixed||4.08||4.099||Unchanged|
|Conventional 5 yr ARM||4.188||4.776||+0.01%|
|30 year fixed FHA||3.813||4.801||Unchanged|
|15 year fixed FHA||3.688||4.638||Unchanged|
|5 year ARM FHA||3.813||5.231||-0.03%|
|30 year fixed VA||4.413||4.607||Unchanged|
|15 year fixed VA||3.75||4.063||-0.06%|
|5 year ARM VA||3.938||4.487||-0.03%|
|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 mortgage rates that are a bit higher or unchanged. But there’s a good chance that will change later. By approaching 10:00 a.m. (ET), the data, compared with this time yesterday, were:
- Major stock indexes were effectively unchanged soon after opening (neutral for mortgage rates)
- Gold prices dropped to $1,295 from yesterday’s $1,309. (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 edged up to $59 a barrel from $58 (slightly bad for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries was unchanged at 2.62 percent. But they were rising this morning after yesterday’s fall. (Bad for borrowers). More than any other market, mortgage rates tend to follow these Treasury yields
- CNNMoney’s Fear & Greed Index climbed to 63 from 60 out of a possible 100. So it remains firmly in “greed” territory. Today’s move 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
Normally, these indicators provide a good idea of what to expect for the rest of the day. But that hasn’t been the case so far this week.
Rate lock recommendation
Rates may be in a good place right now, but will that last? It may. However, there are plenty of factors on our radar that could see them rise. And those are just as likely to materialize as ones that could create further falls.
Brexit threat to mortgage rates
As expected, the British parliament yesterday voted to take the most damaging form of Brexit off the table. But any euphoria was short-lived. The UK, which has the world’s fifth biggest economy, has to resolve this continuing mess by March 29 or request an extension from the EU. But, after more than two years, parliament seems as far from agreeing what it wants as ever. If it finally gets its act together, American mortgage rates might rise. If it fails, and does the nation’s and the other economies real harm, they might remain low.
Meanwhile, markets are increasingly focused on current U.S.-China trade talks. Yesterday, President Trump told reporters regarding his timetable for the negotiations, “I’m not in a rush whatsoever.” And his original Mar. 1 deadline for an agreement passed nearly two weeks ago. But both sides badly need a good outcome, and for similar reasons: to shore up political support at home and to step back from economic slowdowns. But markets worry those pressures will prevent a win-win conclusion — and might even result in no deal being reached or a lose-lose one. Once the talks end, markets will digest the outcome in detail. If no deal is concluded, or if the one that ‘s agreed turns out to be worse than neutral for the U.S., expect mortgage rates to tumble. But, if it’s a win-win — or even just not too terrible and simply brings uncertainty to an end — they could rise.
And finally, the Federal Open Market Committee meets next week (Mar. 19-20). That’s the Federal Reserve body that determines many interest rates. Understandably, investors and analysts will be reading the final day’s statement and watching the press conference closely. Expect market reactions if they find anything unexpected. Yesterday, Comerica Bank removed from its forecasts the only Fed rate hike it was expecting this year.
So, on balance, we see grounds for caution. And we’re continuing to suggest that you lock if you’re less than 30 days from closing. Of course, financially conservative borrowers might want to lock soon, whenever they’re due to close. On the other hand, risk takers might prefer to bide their time. Only you can decide on the level of risk with which you’re personally comfortable.
If you’re still floating, do remain vigilant right up until you lock. 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
By comparison with last week, there are fewer economic reports in coming days. Indeed, there is none today that’s likely to move markets.
Investors and analysts will certainly pay attention to tomorrow’s industrial production and capital utilization data, both of which are measures of the strength of American industry. But those are no longer top-tier indicators and expectations are already low. However, any of these reports could move markets sharply if they contain information that’s wildly different from forecasts.
That’s because markets tend to price in analysts’ consensus forecasts (we use those reported by MarketWatch or Bain) in advance of the publication of reports. So it’s usually the difference between the actual reported numbers and the forecast that has the greatest effect. That means even an extreme difference between actuals for the previous reporting period and this one can have little immediate impact, providing that difference is expected and has been factored in ahead. Although there are exceptions, you can usually expect mortgage rates to move downwards on bad news and upwards on good.
- Monday: January retail sales (actual +0.2 percent; forecast +0.1 percent)
- Tuesday: February consumer price index (actual +0.2 percent; forecast +0.1 percent)
- Wednesday: February’s producer price index (actual +0.1 percent; forecast +0.1 percent)
- Thursday: Nothing
- Friday: February’s industrial production for February (forecast -0.5 percent) and capacity utilization (forecast 78.3 percent). Plus March consumer sentiment (forecast: 93.8/100)
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.
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.