What’s driving current mortgage rates?
Average mortgage rates today as mixed as they get — three up, two down, four unchanged. Not surprising in the wake of yesterday’s nervous-but-neutral economic signs.
The only scheduled report today is the Institute for Supply Management (ISM) Non-manufacturing Index. This tracks the services sector of the economy. Readings above 50 mean economic expansion, and under 50 mean contraction (which is good for rates).
However, there is more to it than that. The direction of an index, and how it lines up with expert predictions also matters. For instance, today’s index came in at 56.7. Over 50, so bad for rates, right? Not necessarily. Because experts had predicted a higher level, and because the index itself is falling.
Both of those things show that the economy is not necessarily expanding, or at least not at the rate predicted. And because this expansion that we did not get was already priced into bond markets (and mortgage rates), the unexpected failure to live up can actually cause rates to fall.
|Conventional 30 yr Fixed||4.667||4.678||+0.08%|
|Conventional 15 yr Fixed||4.167||4.186||Unchanged|
|Conventional 5 yr ARM||4.25||4.854||-0.04%|
|30 year fixed FHA||3.933||4.922||Unchanged|
|15 year fixed FHA||3.75||4.701||Unchanged|
|5 year ARM FHA||4.125||5.38||Unchanged|
|30 year fixed VA||4.497||4.691||+0.58%|
|15 year fixed VA||3.875||4.189||+0.06%|
|5 year ARM VA||4.188||4.604||-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
Today’s financial data are mostly neutral for mortgage rates.
- Major stock indexes opened higher ( bad for Mortgage rates)
- Gold prices are unchanged at $1,318 an ounce. (This is neutral 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 are still $54 a barrel (neutral for mortgage rates because energy prices play a large role
- in creating inflation)
- The yield on ten-year Treasuries edged 3 basis points (3/100th of 1 percent) lower to 2.70 percent. That’s good for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index rose 1 point to a reading of 65 (out of a possible 100), a “greedy” level. “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
Mortgage rates today are all over the place, and there are no reports due tomorrow. Indicators are neutral, so if you need to float a day or so to get a better rate (a 15-day lock instead of a 30-day lock, for example) you can probably do so safely.
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
Many reports this week are marked “DELAYED” in MarketWatch’s economic calendar. This has become a normal occurrence since the government shutdown began.
- Monday: Factory Orders (-.2 percent predicted)
- Tuesday: ISM non-manufacturing index (57.4 rating predicted)
- Wednesday: (all scheduled reports delayed)
- Thursday: Weekly jobless claims (predicted 225,000)
- Friday: nothing
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.