What’s driving mortgage rates today?
Average mortgage rates inched down by the smallest measurable amount yesterday, in line with our “barely changed” prediction. Yes, that leaves them close to their highest in more than a month. But September saw the lowest rates in three years. And by comparison with normal times, today’s offer great deals.
With Brexit and the US-China trade disputes both on pause and no important economic reports scheduled, investors were earlier this morning focusing on company results. Markets began today much as they did yesterday. They’re slightly rate-friendly but not sufficiently so to make a significant fall likely.
So, for now, mortgage rates today look likely to edge lower. But, as always, events might overtake that prediction.
|Conventional 30 yr Fixed||3.917||3.917||-0.08%|
|Conventional 15 yr Fixed||3.542||3.542||-0.08%|
|Conventional 5 yr ARM||4.438||4.312||-0.02%|
|30 year fixed FHA||3.333||4.318||Unchanged|
|15 year fixed FHA||3.333||4.282||+0.04%|
|5 year ARM FHA||3.458||4.519||-0.02%|
|30 year fixed VA||3.333||3.503||Unchanged|
|15 year fixed VA||3.25||3.559||+0.04%|
|5 year ARM VA||3.458||3.709||Unchanged|
|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 (October 23, 2019)
About the Daily Rate Update
Financial data affecting today’s mortgage rates
First thing this morning, markets looked set to deliver mortgage rates today that are modestly lower. By approaching 10 a.m. (ET), the data, compared with the same time yesterday were:
- Major stock indexes were mixed and barely moving soon after opening. (Neutral 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 moved up to $1,497 an ounce from $1,491. (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 held steady at $54 a barrel. (Neutral for mortgage rates, because energy prices play a large role in creating inflation)
- The yield on 10-year Treasurys edged down to 1.74% from 1.77%. (Good for mortgage rates.) More than any other market, mortgage rates tend to follow these particular Treasury bond yields
- CNNMoney’s Fear & Greed Index edged down to 58 from 61 out of a possible 100 points. (Good for mortgage rates.) “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
Today’s movements are again fairly small. So, unless things change, this might be slightly better day for mortgage rates.
Verify your new rate (October 23, 2019)
Economic reports this week
It’s another unusually quiet week for domestic economic reports. There are home sales data on Thursday along with a couple of purchasing manager indexes (PMIs). Friday brings the consumer sentiment index. And those are the big ones!
It’s perfectly possible that markets will shrug them all off, though that will depend on two factors. Whether some domestic or foreign issue blows up that distracts investors. And whether any of the reports contain numbers that are both unexpected and shocking.
Because any report — even those that are usually regarded as inconsequential — can create volatility if it contains sufficiently good or bad news that isn’t expected.
Markets tend to price in analysts’ consensus forecasts (below, we mostly use those reported by MarketWatch) 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. But the US Treasury will be auctioning $87 billion in short-term bills today
- Tuesday: September existing home sales (actual 5.38 million homes sold, annualized; forecast 5.40 million )
- Wednesday: Nothing. But the US Treasury is due to auction 2-year and 5-year notes worth $61 billion
- Thursday: September new home sales (forecast 695,000 homes, annualized) and durable goods orders (forecast -0.7%). Plus October purchasing manager index (PMI) flashes* from Markit: manufacturing PMI (no forecast but previously 51.1 index points) and services PMI (no forecast but previously 50.9)
- Friday: October consumer sentiment index (forecast 96.0 index points)
*”Flashes” are preliminary estimates that are subject to revision
If we see volatility this week, it’s likely to come from other sources, such as Brexit, international trade, domestic politics (speculation about a pre-Thanksgiving government shutdown has already begun) or problems in the Middle East.
Today’s drivers of change
What is Brexit?
For the first time since 2016, Brexit has recently been playing a major role in the determination of American mortgage rates. However, events in the UK parliament yesterday mean — absent shock developments — that its influence may now fade, at least for a week or two and perhaps for some months.
Brexit is Britain’s exit from the European Union (EU) after 46 years of membership of the world’s largest trading bloc. UK Prime Minister Boris Johnson last week concluded a deal with the EU that could see Britain leave before his self-imposed deadline of October 31.
But events in parliament yesterday mean his plans are currently on hold.
Yesterday, members of the UK parliament (MPs) narrowly voted to allow Johnson’s deal to take a first step toward becoming law. But that victory was short-lived. About 15 minutes later, they voted against his legislative timetable, which had given them only three days in which to scrutinize his bill.
Johnson sees a short period of scrutiny as essential to his plan for two reasons. First, he staked his reputation on a promise to get the UK out of the EU by Oct. 31. And, secondly, he fears that some of the MPs who voted for his deal yesterday will demand amendments to it later in the legislative process. So, although he didn’t follow through on his threat to pull the bill, he’s decided to “pause” it.
Ideally, Johnson would now like a snap general election, in which he could portray himself as a champion of the will of the people against an obstructionist parliament. But a 2011 law means he can no longer call that on his own. And his opponents aren’t inclined to grant him that way out. So there’s currently stalemate.
Deal or no deal?
Johnson would still like to see some form of Brexit happen next week, even if that means that a withdrawal agreement containing transitional arrangements is not in place. But such a “no-deal Brexit” is widely seen as a profound act of economic self-harm that could affect the wider European and global economies. Last Saturday, many MPs voted against Johnson’s timetable because they were worried that it left open the possibility of Britain crashing out in this way.
On Sept. 11, the Johnson administration published — under protest, having been forced to do so by parliament — a government impact assessment of what a no-deal scenario might look like. It predicted public disorder, disruption at ports, rising prices, and shortages of some foods and medicines, as well as gas. More recent reports (including one on Oct. 16 from the official National Audit Office) confirm the likelihood of this sort of mayhem.
So far, the British government is refusing to publish an official economic impact assessment for Johnson’s deal. But almost all independent analysts reckon it will be much less harmful than a no-deal Brexit while significantly more harmful than remaining in the EU.
So why on earth would the UK put itself through this? After all, Brexit was originally sold partly on its potential economic benefits. And the country has the right to change its mind and retain membership right up until the moment it leaves.
The two sides (leave and remain) have become cultlike tribes who refuse to listen to each other and who view new information through the prism of their existing beliefs. Remind you of anywhere else?
Brexit in context
Britain’s currency has been yo-yoing as markets’ perceptions of the likelihood of a no-deal Brexit change. Every time markets see it as a real risk, the British pound sterling falls sharply. It rises when that risk is seen to recede.
However, worse for the rest of the world, all this could be happening when many European economies are in trouble. For example, during the last quarter, gross domestic product (GDP) in EU powerhouse Germany shrank by 0.1% compared with the previous quarter. If the current one goes the same way, Germany will technically be in recession. Meanwhile, the UK’s economy is already in even worse shape. Its GDP fell by 0.2% that quarter.
The last time Brexit was perceived to be a real threat to the global economy, it had a direct effect on American mortgage rates, pulling them down. Once again, Brexit is influencing those rates with hopes for a good deal or the UK’s continuing EU membership pushing them up. Meanwhile, any prospect of a no-deal or bad-deal Brexit pulls them down.
US-China trade dispute
Most recent sharp movements in mortgage rates have been largely down to alternating optimism and pessimism over the US-China trade dispute. Indeed, over the last few months, that dispute has probably been the main driver of changes in most markets as they’ve moved in line with emerging and receding hopes of a resolution.
Mortgage rates moved up as hopes grew for the deal that was ultimately unveiled on Oct. 11. Last Tuesday, President Donald Trump said, “We made a fantastic deal.”
However, it was very much a limited “phase 1” agreement. And, as newspapers dug into its contents, their reception of it was more tepid than either markets’ or the president’s initial reactions. Headlines included:
- Partial US-China trade deal only ‘baby step’ as thorny issues remain — Economic Times
- China Emerges With Wins From U.S. Trade Truce — Wall Street Journal
- China makes few concessions in trade truce with US — Financial Times
There’s a good chance, we’d have seen lower mortgage rates last week if that deal had been the only issue. But better-than-expected third-quarter results from many companies (especially banks) and renewed optimism over Brexit kept them stagnant.
Perhaps surprisingly, Chinese Vice Premier Liu He made warm remarks over the weekend about the prospects of a deal being reached. Previously, Beijing had been uncommunicative about its views.
Still, many will welcome any signs this trade dispute might be heading toward a resolution. A new round of American tariffs on Chinese goods became operative on Sept. 1. The Peterson Institute for International Economics reckoned that brought the average US tariff on imports from that country to 21.2%, up from 3.1% when PresidentTrump was inaugurated. More tariffs were due to be imposed through the rest of this year, though the latest deal puts the next round of those on hold.
And this dispute has been causing some pain to both sides. China’s slipped to third place from first in the list of America’s trading partners. Meanwhile, researchers from University College London and the London School of Economics calculate the average American family will pay about $460 a year in higher prices as a result of the tariffs implemented so far.
Meanwhile, a World Trade Organization (WTO) report on Oct. 1 blamed the US-China dispute for a slowdown in global trade. It scaled back its latest forecast to growth of just 1.2%, compared with its 2.6% prediction in April.
European Union next?
On October 18, the US imposed tariffs on goods worth $7.5 billion from European Union (EU) countries. The EU is the world’s biggest trading bloc. In response, the EU introduced import duties of 25% on American goods worth $2.8 billion.
These moves follow a WTO ruling on Oct. 2 on a 15-year dispute over subsidies given to airplane manufacturers Boeing and Airbus. This decision found that EU subsidies had been unfair. A ruling on US subsidies for Boeing is expected in 2020.
However, there was rare good news on the trade front on Sept. 26. The US and Japan concluded a deal that should see $7 billion of American products (mainly farm produce) soon gaining access to Japanese markets.
How trade disputes hurt
All this has been fueling uncertainty in markets. And that, in turn, is creating volatility. Many of the recent wild swings in mortgage rates, bond yields, stock markets, and gold and oil prices have been down to hopes and fears over trade.
Markets generally hate trade disputes because they introduce uncertainty, dampen trade, slow global growth and are disruptive to established supply chains. President Trump 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 hard. And that fear, in turn, is likely to exert long-term downward pressure on mortgage rates, relieved only by hopeful news.
On Sept. 25, The New York Times suggested the current move in the House of Representatives to impeach the president may have only a limited effect on markets. It used the word “fleeting” to describe their probable impact. And, and least so far, its prediction seems to be holding up.
However, the Times went on to warn that the knock-on effects could become more sustained and damaging. That might arise if President Trump uses escalations in the trade war with China to distract voters.
Alternatively, the Times speculated, the effects might be benign if they mean he personally is distracted by the process and loses focus on trade.
Remember, those who want lower mortgage rates need bad news.
Treasurys and mortgage rates
Why are mortgage rates currently so often out of sync with the markets they usually shadow? After all, markets are generally interdependent.
During economically worrying times (the opposite happens when confidence is high), investors sell stocks because they fear a downturn. But they have to put their money somewhere. So they buy lower-yield but safer “risk-off” investments, such as US Treasurys, gold and mortgage-backed securities (MBSs).
MBSs are bundles of individual mortgages, wrapped up within a bond-like “security” (a tradable financial asset) and sold on a secondary market. And, the more investors want to buy them, the lower the mortgage rate you’re likely to be offered.
Markets in sync
Usually, the flows of money are fairly even across risk-off markets. So you can typically assume that gold and bond prices will go up or down roughly in line both with each other and inversely with falling or rising stock prices.
And the same applied to MBSs. In fact, the relationship between 10-year Treasury yields and mortgage rates was for years so close that many (wrongly) assumed the two were formally linked.
Why the change?
But nobody could make that mistake now. For example, on Aug. 23, those yields plunged from 1.60% to 1.54% but mortgage rates only edged down.
So why are the MBSs that actually determine mortgage rates drifting apart from risk-off investments generally and those Treasury yields in particular? There are three main reasons:
- Investors are concerned they’re not being rewarded sufficiently for the extra risk they shoulder when they buy MBSs rather than Treasury bonds. In particular, the Treasury never welshes or redeems its bonds early (in spite of President Trump’s recent call to “refinance” government debt), making those ultrasafe and predictable. Meanwhile, mortgage borrowers often refinance and occasionally default
- Some are worried about the possibility of the government reforming Fannie Mae and Freddie Mac. On Sept. 6, the administration published a 53-page proposal. But National Mortgage Professional magazine described that as “mostly a summary of potential strategies”
- The things that spook or please investors in Treasury bonds don’t always apply to mortgage-backed securities
And another factor affects mortgage rates rather than MBSs themselves. Mortgage lenders are distrustful of extreme volatility and often take a wait-and-see stance before adjusting the rates they offer
Those Treasury yields are one of the main indicators (see the “financial data” list above for others) we use to make predictions about where rates will head. And, with those tools more unreliable than usual, we sometimes struggle to get our daily predictions right. Until the relationship between rates, yields and other indicators gets back in sync, you should bear that in mind.
“Inverted yield curve” is easy to understand
You’ve probably read a lot recently about the “inverted yield curve.” But it’s the sort of impenetrable jargon that most of us skip over on the grounds life’s already too short.
But hold on! It’s actually easy to understand. It simply means that short-term US Treasury bills, notes and bonds are giving higher yields than long-term ones. Yes, that’s rare. You usually expect to get a better return the longer you commit to an investment.
It’s also a little scary. Frequently, in the past, when the yield curve has inverted, a recession has soon followed. That doesn’t mean it will this time. But it’s a bit worrying.
Critical yield curve inverted
Any time yields are lower on longer-term bonds than shorter ones, that’s an inversion. But it’s when the 2- and 10-year Treasury yields (the return you get on those US government securities) invert that has proved to be the most reliable — close to infallible — predictor of recessions.
And those two hadn’t crossed the line since June 2007 — until mid-August this year. Since then, they’ve crossed and recrossed it several times.
Unless you’re in hiding, you can’t have missed the resulting doom-laden media reports, full of dire predictions. In fact, right now, there are few other noticeable signs of a recession looming. And some say fears are overblown.
Last Friday’s Financial Times carried the headline, “Strategists worry US yield curve could invert again.”
Lower rates ahead?
On Sept. 6, CNBC ran a studio interview with Bob Michele, CIO of J.P. Morgan Asset Management. In that interview, Michele predicted that the yield on 10-year Treasurys would hit zero before the end of this year.
On the same day, Lawrence Yun, the National Association of Realtors® chief economist, said he could envisage a new record-low mortgage rate of 3.3% — also before the end of this year.
By all means, take cheer from these predictions. But never forget a remark made by the late Harvard economics professor John Kenneth Galbraith:
The only function of economic forecasting is to make astrology look respectable.
And the recent pattern of rises and falls suggests an uneven path, even if those prognosticators are ultimately proved right.
Negative mortgage rates
Just don’t expect zero or negative mortgage rates in America anytime soon. Still, they’re not unthinkable within a year or two. Writing for The Mortgage Reports, Peter Miller described a European bank that is already charging its customers a negative mortgage rate:
A Danish bank called Jyske Bank is offering a mortgage that pays the borrower.
“Jyske Realkredit is ready with a fixed-rate mortgage with a nominal interest rate of minus 0.5%,” says the bank.
“Yes, you read right,” it continues. “You can now get a fixed-rate mortgage with a maturity of up to 10 years, where the nominal interest rate is negative.” (Of course, the bank warns, there will be fees, so you may not actually get a return.)
Read the full report: Negative mortgage rates are real — and they might come to the U.S.
Rate lock recommendation
We suggest that you lock if you’re less than 30 days from closing. Some professionals are recommending locking even further out from closing and we wouldn’t argue with them.
However, that doesn’t mean we expect you to lock on days when mortgage rates are actively falling. That advice is intended for more normal times.
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 future falls. But 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.
Bearing in mind professor Galbraith’s warning, I personally 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
But it’s entirely your decision.
» MORE: Show Me Today’s Rates (October 23, 2019)
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 (October 23, 2019)
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.