What’s driving mortgage rates today?
Average mortgage rates fell moderately yesterday, as we predicted. They’re now back within the comfortable, exceptionally low range where they’ve been for much of July.
Today might have seen big changes with key data released this morning. But the figures came in on or close to forecasts so there were no shocks to disturb markets. Consumer confidence numbers were much better than expected but released on our deadline so we’ve been unable to assess their impact on markets.
Mortgage rates today look likely to hold steady or just inch either side of the neutral line. However, events (including those consumer confidence figures) might yet overtake that prediction.
|Conventional 30 yr Fixed||3.813||3.813||+0.01%|
|Conventional 15 yr Fixed||3.375||3.375||Unchanged|
|Conventional 5 yr ARM||4.063||4.303||-0.02%|
|30 year fixed FHA||3.375||4.36||Unchanged|
|15 year fixed FHA||3.375||4.324||Unchanged|
|5 year ARM FHA||3.563||4.817||-0.01%|
|30 year fixed VA||3.438||3.609||Unchanged|
|15 year fixed VA||3.375||3.685||Unchanged|
|5 year ARM VA||3.625||4.041||+0.02%|
|Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.|
» MORE: Check Today’s Rates from Top Lenders (July 30, 2019)
Financial data affecting today’s mortgage rates
First thing this morning, markets looked set to deliver mortgage rates today that are unchanged or barely changed. By approaching 10 a.m. (ET), the data, compared with this time yesterday, were:
- Major stock indexes were all a little lower soon after opening (bad for mortgage rates). When investors are buying shares they’re often selling bonds, which pushes prices of Treasurys down and increases yields and mortgage rates. The opposite happens on days when indexes fall. See below for a detailed explanation
- Gold prices rose to $1,429 an ounce from $1,420. (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 inched up to $57 a barrel from $56 (bad for mortgage rates, because energy prices play a large role in creating inflation)
- The yield on 10-year Treasurys edged up to 2.06% from 2.05% (bad for borrowers). More than any other market, mortgage rates tend to follow these particular Treasury bond yields
- CNNMoney’s Fear & Greed Index fell to 53 from 61 out of a possible 100 points. (good 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
It might be a quiet day for mortgage rates.
Compare top refinance lenders
Verify your new rate (July 30, 2019)
Today’s drivers of change
The US-China trade dispute is still very much alive in spite of recent events. At the end of June, Presidents Donald Trump and Xi Jinping met in Osaka, Japan during the G-20 summit. And, as a result, bilateral trade talks began again and America has held off on the implementation of planned new tariffs. But existing tariffs (and resentments and disagreements) remain in place.
So far, markets have appeared skeptical about how much difference the Osaka meeting will ultimately make. And many observers question whether the resumed talks can make much progress.
A new round is being conducted in China this week. But even President Trump appears pessimistic. “I don’t know if they’re going to make a deal,” he said last Friday. “Maybe they will, maybe they won’t.”
US vs. EU
Meanwhile, the possibility of a second front in the trade wars remains real. And there are increasing rumblings of possible escalations in the US-European Union (EU) trade dispute. Recently, the U.S. proposed more tariffs on EU goods, though those are yet to be implemented.
Even more recently, the US has threatened to introduce tariffs against France, which is an EU member state. This is in response to a tax France will shortly implement on revenues generated within its national borders by US-based digital companies. This is to counter artificial, cross-border tax-efficiency measures that some such firms can use to reduce their profits (and so tax liabilities) in local markets. Making the companies pay a low rate (3% in France’s case) on revenues rather than profits goes some way to undermine those measures. Other EU countries are considering introducing similar revenue taxes.
The EU is the biggest trading bloc in the world and an all-out trade war between it and the US would be a clash of Titans that could cause real harm to the global economy — as well as the economies of both participants.
How disputes hurt
Markets hate trade disputes because they introduce uncertainty, dampen trade, slow global growth and are disruptive to established supply chains. The President is confident that analysis is wrong and that America will come out a winner.
However, some fear a trade war — possibly on two fronts — might be a drag on the global economy that hits America especially hard. And that fear, in turn, is likely to exert long-term downward pressure on mortgage rates.
That’s not to say they won’t sometimes move up in response to other factors. But, absent a resolution, such trade wars may well see the current downward trend in mortgage rates continuing or plateauing.
The Fed policy on interest rates remains “dovish.” That means it’s signaled that it will cut its own rates (and therefore many others in the wider economy) tomorrow and may do so again later in the year. Economists are divided over whether that’s a good idea.
This policy is generally conducive to lower mortgage rates and again could exert downward pressure on those. However, markets occasionally react counterintuitively to rate changes by viewing them through a short-term, big-picture prism.
Brexit is Britain’s exit from the EU. New UK Prime Minister Boris Johnson currently seems firm about his country ceasing to be an EU member state on October 31.
He insists that will happen regardless of whether a withdrawal agreement containing transitional arrangements is in place. This “no-deal Brexit” is widely seen as a profound act of economic self-harm. And, as a result, the UK’s currency, the pound sterling, yesterday slid to its lowest level in 28 months compared to both the US dollar and euro.
The last time Brexit was perceived to be a real threat, it had a direct effect on American mortgage rates, pulling them down. That may well happen again this time around — though probably not quite yet.
Are markets bottoming out?
Since the middle of last November, the graph of average mortgage rates shows them falling with amazing consistency. Only occasionally and relatively briefly have they risen.
Some experts are now warning that those rates are unlikely to go much lower — at least, absent something disastrous happening that pushes them beyond established ranges. Such bad news remains a possibility. Currently, there are tensions in the Middle East that could rapidly turn into a shooting war involving the United States. Trade disputes might become yet more widespread and toxic, ultimately triggering a global recession. And, of course, events may quickly arise that are currently on nobody’s radar.
But, without such an external stimulus, those experts reckon rates are unlikely to fall much further. And, of course, there’s scope for good economic news that could see them rise, possibly sharply. Not everyone agrees with this analysis: Read Could we see 2% mortgage rates before this is all over?
Last Friday’s Financial Times seemed to back up that alternative view. Under the headline, “Why US bond yields could be going the way of Germany and Japan,” it speculated, “Without a dose of ‘shock and awe’ from the Fed, long-term rates could drop below zero.” The newspaper was, of course, referring to the Fed’s internal rates there. Nobody’s suggesting mortgage rates could ever turn negative.
While that battle of the experts is being fought, the deals that are available for you to lock in are now excellent by all but the most extreme standards. That’s why we still suggest locking your rate if you’re less than 30 days from closing. In this writer’s personal assessment, the potential gains you stand to make by floating are outweighed by the possible losses. But, as we say below on a daily basis, “Only you can decide on the level of risk with which you’re personally comfortable.”
Treasurys and mortgage rates
We liked a Mortgage News Daily simile so much we stole it. Mortgage rates are like dogs while yields on 10-year Treasury bonds are like their owners. Mostly, mortgage rates trot happily along on their leashes at their human’s heels. But occasionally they run ahead, dragging the owner along. And at other times they sit stubbornly and have to be dragged along.
Recently, they’ve been sitting a lot. If they’d been keeping up with those Treasury yields, rates would be even lower than they currently are. Why the gap? Two reasons. Apparently, investors are concerned they’re not being rewarded sufficiently for the extra risk they shoulder when they buy mortgage-backed securities rather than Treasury bonds. And some are worried about the possibility of the government reforming Fannie Mae and Freddie Mac.
Sometimes, a third reason can play a part in rates sitting. The things that spook investors in Treasury bonds don’t apply to mortgage-backed securities.
Those Treasury yields are one of the main indicators we use to make predictions about where rates will head. And, with that tool more unreliable than usual, we sometimes struggle to get our daily predictions right. Until the relationship between rates and yields gets back in sync, you should bear that in mind.
Rate lock recommendation
Trends are impossible to discern from just a few days’ changes. So don’t read too much into short-term fluctuations. Frustrating though it is, there really is no way of knowing immediately what movements over a brief period mean in their wider context.
Even when one’s discernible, trends in markets never last forever. And, even within a long-term one, there will be ups and downs. Eventually, at some point, enough investors decide to cut losses or take profits to form a critical mass. And then they’ll buy or sell in ways that end that trend. That’s going to happen with mortgage rates. Nobody knows when or how sharply a trend will reverse. But it will. That might not be wildly helpful but you need to bear it in mind. Floating always comes with some risk.
We suggest that you lock if you’re less than 30 days from closing. Of course, financially conservative borrowers might want to lock immediately, almost regardless of when they’re due to close. After all, current mortgage rates remain exceptionally low and a great deal is assured. On the other hand, risk-takers might prefer to bide their time and take a chance on further falls. Only you can decide on the level of risk with which you’re personally comfortable.
If you are 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
» MORE: Show Me Today’s Rates (July 30, 2019)
This week is a heavy one for economic reporting, with a number of publications that could move markets and mortgage rates. Today and Friday are the most dangerous days, containing as they do some of the most critical data for markets.
Besides that, markets continue to focus on this week’s meeting (today and tomorrow) of the Federal Open Market Committee (FOMC). That’s the body that sets the Fed’s own rates — and therefore many others. Following clear signals from Fed officials, pretty much everyone now expects a rate cut to be announced tomorrow afternoon. But investors may well spend the time between now and then laying bets (or “jockeying for position within markets”) on how big that cut will be and the economic context within which the FOMC will present it.
Of course, any day can carry risk. Because any news story that can affect the American or global economies has the potential to move markets — and mortgage rates. And any economic report can trigger similar changes if it contains sufficiently shocking information.
Markets tend to price in analysts’ consensus forecasts (below, we mostly use those reported by MarketWatch, Moody’s Analytics or Bain Mortgage) 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 downward pressure on mortgage rates from worse-than-expected figures and upward on better ones. However, for most reports, much of the time, that pressure may be imperceptible or barely perceptible.
This week’s calendar
- Monday: Nothing
- Tuesday: June’s personal income (actual +0.4%; forecast +0.4%), consumer spending (actual +0.3%; forecast +0.3%) and core inflation (actual +0.1%; forecast +0.2%). Also, July’s consumer confidence index (actual 135.7 index points; forecast 126.5)
- Wednesday: July ADP employment (no forecast). And Q2 employment cost index (forecast +0.7%) Also, FOMC announcement (2 p.m. (ET)) and news conference (2:30 p.m. (ET))
- Thursday: July ISM manufacturing index (forecast 51.2%) and June construction spending (+0.2%)
- Friday: Official employment situation report for July, including nonfarm payrolls (forecast +171,000 new jobs), unemployment rate (forecast 3.6%), and average hourly earnings (forecast +0.2%). Plus July’s consumer sentiment index (forecast 98.5 index points). Also, June’s trade deficit (forecast -$54.4 billion) and factory orders (forecast +0.6%)
After several light weeks for economic reports, this one’s a blockbuster. Today and Friday are particularly important.
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% 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%).
- 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% 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%. 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 7%. Interest rates and yields are not mysterious. You calculate them with simple math.
Show Me Today’s Rates (July 30, 2019)
Compare top refinance lenders
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.