|Type of Loan||Rate||APR|
|Conventional 5/1 ARM||3%||2.934%|
|Conventional 15-Year Fixed||2.351%||2.437%|
|Conventional 30-Year Fixed||2.714%||2.765%|
|FHA 5/1 ARM||3.062%||3.533%|
|FHA 15-Year Fixed||2.365%||3.335%|
What Factors Are Moving Mortgage Rates Today?
Mortgage rates today opened mostly higher as predicted. The only economic release this morning is November’s Leading Economic Indicators (LEI) from The Conference Board, a business research group. The LEI is an attempt to predict economic activity over the next three months or so. Today’s report showed a 0.6% increase when analysts had predicted .4%. That’s bad news for mortgage rates. However, the only news anyone’s paying attention to these days is pandemic- and stimulus-related. It appears that Congress is not getting its act together to produce a spending bill before the government has to shut down. With no bill today, interest rates will likely fall slightly as uncertainty is injected into the US economy, again.
Today’s Rate Lock Recommendation
Fridays are not historically the best days to lock in a mortgage rate. If we get through the weekend without a spending bill, mortgage rates will probably fall on Monday. However, if Congress passes a bill over the weekend, mortgage rates will probably not move as this possibility is already being priced in.
As long as COVID and a possible stimulus package loom, mortgage rates are volatile. And that might be a rough ride because according to Mortgage News Daily, it’s taking lenders an average of 60 days to close mortgages. It’s important to understand that a 30-day lock might not get you all the way through closing. And locking in early is not really practical for many — a 60-day lock costs .5% to 1% upfront with most lenders.
What should you do if your rate might expire before your loan can close? Keep an eye on interest rates here and stay in contact with your lender. Every day that interest rates are at or below the rate that you locked in, you can relock your loan at no charge and restart the clock on your lock period. So if you have a 30-day lock in place, it’s been two weeks and rates are still where you locked in, you can relock and get 30 more days for a total of six weeks. It’s not a bad idea to preemptively do this just in case your loan closes a few days late.
Lock your rates if your closing date is within:
- 7-day closing
- 15-day closing
Float your rates if your closing date is within:
Economic Data Affecting Today’s Mortgage Rates
This morning’s financial data are mostly neutral as market participants wait for Congress to pass or not pass a spending bill and economic stimulus package. Here are the numbers influencing mortgage rates today:
The three major US stock indexes opened mixed and mostly unchanged as market participants await a spending bill from Congress. If that doesn’t happen, the government will have to shut down and that uncertainty will likely cause stocks and mortgage interest rates to fall on Monday. Stock market prices are fairly good predictors of interest rates. When stocks increase, the economy is heating up. This usually leads to higher mortgage and other interest rates. Falling stock prices normally correlate with lower interest rates. This morning’s pricing is neutral for mortgage rates.
The 10-year Treasury interest rate remained unchanged at .94%. Yields on 10-year Treasuries usually move in the same direction as mortgage rates, and this change is neutral for mortgage rates.
This morning’s oil price rose for the fifth consecutive day, this time by $.78 to $49.01 per barrel. This is bad for mortgage rates. Oil is a limited resource required for most economic activity in the US. Rising oil prices trigger fears of inflation and this often causes interest rates to rise, while falling oil prices have the opposite effect.
This morning’s gold price fell just $3 to $1890 per ounce. Increasing gold prices often go in tandem with lower interest rates, but rates often rise as gold prices fall. Today’s movement is neutral for mortgage rates.
CNNMoney’s Fear & Greed Index measures investor sentiment with a variety of metrics. When investors are confident, or “greedy,” mortgage rates tend to increase. And when investors become more “fearful,” interest rates fall. This morning’s index plunged by 9 points to a still “greedy” 62. The scope and direction of this movement are good for mortgage rates.
Almost anything that impacts the world economy can cause mortgage interest rates to change. In most cases, news that indicates economic weakening is good for mortgage rates. Investors switch to safer investments like Treasuries or mortgage-backed securities (MBS) and are willing to accept lower returns in exchange for safety.
News that suggests economic strengthening is generally bad for mortgage rates. This is because economic heat can also cause fears of inflation. Investors then demand higher interest rates to compensate for inflationary risk, because no one wants to be earning 3% in a 4% world.
This Week’s Upcoming Releases
This week has just a handful of economic releases, with Wednesday being the most important day for reporting.
|Day of the Week||Upcoming Release|
|Monday||No releases scheduled.|
|Tuesday||November’s Industrial Production report measures manufacturing sector strength by tracking output at U.S. factories, mines, and utilities. Forecasters anticipate a 0.3% increase in output. Less than .3% would be good for bond and mortgage interest rates, while a stronger result would indicate a stronger manufacturing sector — bad news for mortgage rates.|
|Wednesday||The biggest economic news of the week is the November Retail Sales report, which tracks consumer spending. This is important because consumer spending comprises over two-thirds of the U.S. economy. Analysts have predicted a decline of 0.2% in November’s sales. A larger decline would indicate economic distress, which tends to be good for bond and mortgage-backed securities (MBS) pricing — and good for mortgage rates. A smaller decline or an increase would be bad news for mortgage rates.
The Federal Open Market Committee (FOMC) will end its two-day meeting and release a statement this afternoon. Analysts have predicted that Fed Chairman Powell won’t change short-term interest rates. Lenders and investors will focus on potential attempts to boost economic activity, as the Fed’s repeated requests that Congress to pass another stimulus bill have gone unheeded. When they release their post-meeting statement, they will also announce revised economic projections — widely anticipated to be weaker than previous projections. If the statements contain any surprises, mortgage rates could move quickly this afternoon.
|Thursday||We’ll get the usual weekly unemployment figures, which aren’t normally considered important enough to move mortgage rates. There will also be a lesser economic report — November’s Housing Starts — which indicates housing sector strength by tracking new home groundbreakings. Analysts anticipate little change in new home starts. Fewer starts would be good for mortgage rates, but the actual numbers would have to vary wildly to make an impact.|
|Friday||November’s Leading Economic Indicators (LEI) from the Conference Board attempts to predict economic activity over the next three to six months. Experts predict a 0.4% increase, moderate economic growth over the next several months. This release is unlikely to impact bond prices or mortgage rates unless the reading is much stronger (bad for mortgage rates) or much weaker (good for mortgage rates).|
Why Do Mortgage Rates Change?
In general, positive economic news causes interest rates (including mortgage rates) to increase. That’s because an expanding economy can increase the rate of inflation, and investors demand higher returns when they are concerned about inflation. When the economy is shaky, investors become less worried about how much their money earns and more worried about losing it. So demand for safe investments like bonds increases, driving their prices up and interest rates down.
How Bonds Work
Bond issuers create bonds paying a specific interest rate at a predetermined price, called “par.” Par pricing is normally $1,000 for a $1,000 bond, and the interest rate for that bond is called the “coupon rate.” For a $1,000 bond paying 5%, the actual yield would be the same as its coupon rate.
Your interest rate: $50 interest / $1,000 bond price = 5%
But bonds don’t stay at par pricing – they are subject to market supply and demand just likes shares of stock are, and their price can rise and fall all day long. These price movements are triggered by events that impact the global economy. Happenings that signal economic heating and possible inflation cause demand for bonds to fall and rates to increase. While events that indicate economic instability or failure push investors into safe havens like bonds. Demand for these instruments causes their prices to rise and rates to fall. The examples below illustrate upward and downward interest rate movements.
When Interest Rates Fall
After you purchase your bond, though the economy becomes troubled. Perhaps by political instability or a global pandemic. Investor demand for safe places to put their money skyrockets and 5% becomes highly desirable. You sell your $1,000 bond to an investor for $1,500. The buyer gets the same $50 a year in interest that you were getting. It’s still 5% of the $1,000 coupon. However, the yield drops.
Your buyer’s interest rate: $50 annual interest / $1,500 bond price = 3.33%
When Interest Rates Rise
The opposite occurs when the economy improves. Suppose that after you purchased your $1,000 bond, the pandemic is resolved with the invention of a vaccine, and threats of war subside in volatile countries. The stock market is taking off and 5% doesn’t look so great anymore. Investor demand falls for your bond and you can only sell it for $750. The buyer pays less and enjoys a higher yield.
Your buyer’s interest rate: $50 annual interest / $750 bond price = 6.67%
The relationship between bond prices and interest rates is predictable. It’s simple math.