Forecast plus what’s driving mortgage rates today
Average mortgage rates rose again yesterday. And you have to go back to near the end of July to find a higher average than this morning’s. But, near the end of July, everyone then thought those rates were incredibly low. FHA loans today start at 2.25% (3.226% APR) for a 30-year, fixed-rate mortgage.
Not everyone agrees with my assessment yesterday. I said I thought it would “take more decisively good economic news to trigger a sustained period of rises.” But others believe we might be seeing the start of a continuing upward trend. Nobody claims any level of certainty. So it’s your choice whether you roll the dice by continuing to float.
Find and lock current rates. (Aug 13th, 2020)
| Program | Rate | APR* | Change |
|---|---|---|---|
| Conventional 30 yr Fixed | 3.188 | 3.188 | -0.06% |
| Conventional 15 yr Fixed | 3.188 | 3.188 | Unchanged |
| Conventional 5 yr ARM | 5 | 3.514 | Unchanged |
| 30 year fixed FHA | 2.25 | 3.226 | Unchanged |
| 15 year fixed FHA | 2.25 | 3.191 | Unchanged |
| 5 year ARM FHA | 2.75 | 3.353 | +0.01% |
| 30 year fixed VA | 2.75 | 2.926 | +0.51% |
| 15 year fixed VA | 2.25 | 2.571 | Unchanged |
| 5 year ARM VA | 2.5 | 2.44 | +0.01% |
| Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here. | |||
• COVID-19 mortgage updates: Mortgage lenders are changing rates and rules due to COVID-19. To see the latest on how coronavirus could impact your home loan, click here.
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Market data affecting (or not) today’s mortgage rates
Are mortgage rates again aligning more closely with the markets they traditionally follow? It’s certainly an inconsistent relationship, confused by behind-the-scenes interventions by the Federal Reserve. That is currently buying mortgage bonds and so invisibly influencing rates.
But, if you still want to take your cue from markets, things are looking quieter for mortgage rates today. Why? Because investors liked this morning’s weekly number for new claims for unemployment insurance. However, low global demand for oil is weighing on sentiment.
The numbers
Here’s the state of play this morning at about 9:50 a.m. (ET). The data, compared with about the same time yesterday, were:
- The yield on 10-year Treasurys edged higher to 0.69% from 0.67%. (Bad for mortgage rates.) More than any other market, mortgage rates normally tend to follow these particular Treasury bond yields, though less so recently
- Major stock indexes were mostly modestly lower. (Good for mortgage rates.) When investors are buying shares they’re often selling bonds, which pushes prices of those down and increases yields and mortgage rates. The opposite happens when indexes are lower
- Oil prices nudged up to $42.62 a barrel from $42.35 (Neutral for mortgage rates* because energy prices play a large role in creating inflation and also point to future economic activity.)
- Gold prices inched up to $1,950 from $1,947 an ounce. (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.
- CNN Business Fear & Greed index held steady at 73 out of a possible 100 points. (Neutral 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
*A change of a few dollars on gold prices or a matter of cents on oil ones is a fraction of 1%. So we only count meaningful differences as good or bad for mortgage rates.
Rate lock advice
My recommendation reflects the success so far of the Fed’s actions in keeping rates uberlow. I personally suggest:
- 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
But it’s entirely your decision. And you might wish to lock anyway on days when rates are at or near all-time lows.
The Fed may end up pushing down rates even further over the coming weeks, though that’s far from certain. And, separately, continuing bad news about COVID-19 could have a similar effect through markets. (Read on for specialist economists’ forecasts.) But you can expect bad patches when they rise.
As importantly, the coronavirus has created massive uncertainty — and disruption that seems capable of defying in the short term all human efforts, including perhaps the Fed’s. So locking or floating is a gamble either way.
Important notes on today’s mortgage rates
Freddie Mac’s weekly rates
Don’t be surprised if Freddie’s Thursday rate reports and ours rarely coincide. To start with, the two are measuring different things: weekly and daily averages.
But also, Freddie tends to collect data on only Mondays and Tuesdays each week. And, by publication day, they’re often already out of date.
That may be the case today. If half of Freddie’s data were collected on Monday of this week, its figures will be skewed because Monday’s average was immediately adjacent to the all-time low. The rises happened on Tuesday and Wednesday.
By all means, rely on Freddie’s accuracy over time. But not necessarily each day or week.
The rate you’ll actually get
Naturally, few buying or refinancing will actually qualify for the lowest rates you’ll see bandied around in some media and lender ads. Those are typically available only to people with stellar credit scores, big down payments and robust finances (“top-tier borrowers,” in industry jargon). And, even then, the state in which you’re buying can affect your rate.
Still, prior to locking, everyone buying or refinancing typically stands to lose when rates rise or gain when they fall.
When movements are very small, many lenders don’t bother changing their rate cards. Instead, you might find you have to pay a little more or less on closing in compensation.
A new blow for Fannie and Freddie refinances
If you’re planning to refinance to a loan backed by Fannie Mae or Freddie Mac, you may have to pay more for the privilege. Because the Federal Housing Finance Agency, which regulates the two enterprises, has just imposed a new, additional closing cost.
Unless your loan closes before the end of this month, the FHFA will make you pay an additional 0.5% of the loan amount, supposedly to cover additional market risk. For a $200,000 loan, that’s $1,000 added to your closing costs (divide your loan amount by 200).
The future
Overall, we still think it possible that the Federal Reserve’s going to drive rates even lower over time. And, following the last meeting of its policy committee, the organization confirmed that it planned to maintain this strategy for as long as proves necessary. At a news conference, Fed chair Jay Powell promised:
We are committed to using our full range of tools to support our economy in this challenging environment.
However, there was a lot going on here, even before the green shoots of economic recovery began to emerge. There’s even more now. And, as we’ve already seen, the Fed can only influence some of the forces that affect mortgage rates some of the time. So nothing is assured.
Read “For once, the Fed DOES affect mortgage rates. Here’s why” to explore the essential details of that organization’s current, temporary role in the mortgage market.
Higher rates to deter demand
We may see a repeat of a phenomenon that occurred earlier this year. That’s when lenders’ offices are so overwhelmed by demand for mortgages and refinances that they can’t cope.
Couple that with logistical issues as many employees work from home due to the pandemic, and you can see that some lenders might be facing administrative meltdown.
To try to deter some of the excess demand, lenders may artificially inflate the rates they offer. It’s the only way they can stop their people from drowning in paperwork and its digital-era equivalent.
And neither markets nor the Fed can influence how this part of the pricing mechanism affects mortgage rates.
What economists expect for mortgage rates
Mortgage rates forecasts for 2020
The only function of economic forecasting is to make astrology look respectable. — John Kenneth Galbraith, Harvard economist
Galbraith made a telling point about economists’ forecasts. But there’s nothing wrong with taking them into account, appropriately seasoned with a pinch of salt. After all, who else are we going to ask when making financial plans?
Fannie Mae, Freddie Mac and the MBA each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
The numbers
And here are their latest forecasts for the average rate for a 30-year, fixed-rate mortgage during each quarter (Q1, Q2 …) in 2020. Fannie updated its forecasts on July 14 and the MBA refreshed its the following day. Freddie’s, which is now a quarterly report, was published in mid-June.
| Forecaster | Q1 | Q2 | Q3 | Q4 |
| Fannie Mae | 3.5% | 3.2% | 3.0% | 3.0% |
| Freddie Mac | 3.5% | 3.4% | 3.3% | 3.3% |
| MBA | 3.5% | 3.2% | 3.2% | 3.3% |
So none of the forecasters is expecting a quarterly average below the 3.0% mark this year. Of course, that doesn’t exclude daily or weekly averages below that level during any quarter. After all, quarterly averages can include some quite sharp differences between highs and lows.
Both Fannie and the MBA were a bit more optimistic about rates in their July (monthly) forecasts. And that’s leaving Freddie’s June (quarterly) one looking stale.
What should you conclude from all this? That nobody’s sure about much but that wild optimism about the direction of mortgage rates might be misplaced.
Further ahead
The gap between forecasts is real and widens the further ahead forecasters look. So Fannie’s now expecting that rate to average 2.9% through the first half of next year and then inch down to 2.8% for the second half.
Meanwhile, Freddie’s anticipating 3.2% throughout that year. And the MBA thinks it will be back up to 3.4% for the first half of 2021 and 3.5% for the second. Indeed, the MBA reckons it will average 3.7% during 2022. You pays yer money …
Still, all these forecasts show significantly lower rates this year and next than in 2019, when that particular one averaged 3.94%, according to Freddie Mac’s archives.
And never forget that last year had the fourth-lowest mortgage rates since records began. Better yet, this year may well deliver an all-time annual low — barring shocking news. Of course, shocking news is a low bar in 2020.
Mortgages tougher to get
The mortgage market is currently very messy. And some lenders are offering appreciably lower rates than others. When you’re borrowing big sums, such differences can add up to several thousands of dollars over a few years — more on larger loans and over longer periods.
Worse, many have been putting restrictions on their loans. So you might have found it harder to find a cash-out refinance, a loan for an investment property, a jumbo loan — or any mortgage at all if your credit score is damaged.
All this makes it even more important than usual that you shop widely for your mortgage and compare quotes from multiple lenders.
Economic worries
Mortgage rates traditionally improve (move lower) the worse the economic outlook. So where the economy is now and where it might go are relevant to rate watchers.
The president’s weekend announcements
In an attempt to cut through the partisan logjam in Congress, President Donald Trump signed a number of executive orders and memorandums over the weekend.
Some hoped the president’s initiative might be a catalyst for legislators on Capitol Hill, who have failed to come up with their own stimulus package. But no. Although the Senate remains in session, vanishingly few legislators remain in DC.
What and why
The measures are intended to boost the economy, principally by providing the unemployed with $300 in weekly benefits (the White House yesterday clarified that only some might get $400) and by suspending payroll tax payments for the last four months of this year for those earning less than about $100,000.
Another order seeks to moderate the number of evictions that the pandemic might produce. And a fourth might provide assistance for those paying student loans.
These measures have to overcome two hurdles. First, experts are divided over the legality and constitutionality of the initiatives. And, when he announced them, the president himself acknowledged that some of his actions might be challenged in court.
Practical issues
And, secondly, some point to practical problems that could undermine the measures. Not least among these is the time it might take to implement them. On Tuesday, Treasury Secretary Steven Mnuchin said he hoped unemployment relief might start to flow “within the next week or two.” But some doubt the likelihood of that.
And there are other practical issues. The money will apparently come from $44 billion in FEMA funds, leaving that agency with limited resources to cope with a future disaster. But some say $44 billion would fund the president’s program for less than five weeks. And that program would only help those receiving at least $100 in state unemployment benefits, leaving those hardest hit with no additional aid.
Payroll problems
The payroll tax initiative is at least as fraught. Employers will be asked to suspend withholding tax for those four months. But there are concerns that many won’t cooperate.
That’s because their employees will still owe the tax whether or not it’s withheld. And they will not be grateful if they’re faced with huge bills next year. As significantly, employers are legally liable for shortfalls that arise through failing to withhold taxes properly.
So many may protect themselves and their people by creating escrow accounts into which withheld taxes are put — or at least wait until details of the program are clearer. And that would defeat the object of the executive order, which was to quickly put more money into consumers’ pockets.
The president says he hopes the unwithheld tax will ultimately be forgiven. But that’s not currently in his gift.
Lesser measures and their issues
The measure concerning evictions only directs the Department of Health and Human Services and the Centers for Disease Control and Prevention to “consider” the necessity of further suspending evictions. It has no immediate effect.
A fourth initiative waived interest for a period on student loans and suspended collection of principal payments.
Politics a growing issue
The threats to the economy that stem from the current Congressional deadlock are obvious. And you can see why the president sought to intervene.
There may be sound ideological and long-term economic reasons for discontinuing additional unemployment benefits. But, in the short term, that might impact millions, including those who don’t directly receive them.
Most obviously, landlords may not receive their rents and have to go to the expense of evicting tenants and finding new ones, while being unable to pay their own mortgages. And lenders (those who provide credit cards, personal loans, auto loans and so on, as well as mortgages) could see defaults, repossessions and foreclosures soar across broad population groups.
As importantly, some economists warn that letting the federal benefit lapse risks hitting consumer spending, something that could quickly affect the wider economy. On Aug. 3, The Financial Times had a headline, “US economy in peril as unemployment payments expire.”
Consumers key to US economy
Think The Financial Times was exaggerating? Maybe. But the US economy relies heavily on consumer spending for its growth.
So, even leaving aside the human misery, political paralysis could prove costly for the economy. Meanwhile, a small-business relief program expired last Saturday.
COVID-19 still a huge threat
That pandemic and its economic implications are the single biggest influences on markets at the moment. And trends for new infections and deaths are looking encouraging.
But there remain plenty of states, cities, areas and neighborhoods that are hot spots with rising infections and deaths. And we’re not yet past seeing some shocking figures. Yesterday’s death toll was the highest on a single day since mid-May. And last Saturday we saw the total number of infections surpass 5 million.
In a White House virus briefing on July 21, President Donald Trump warned:
It will probably, unfortunately, get worse before it gets better. Something I don’t like saying about things, but that’s the way it is.
Non-pandemic news
Although COVID-19 news dominates both generally and in markets, there’s still room for other fears. And concerns over trade and foreign relations with China are currently elevated.
As The Financial Times suggested on July 24:
Tensions between the world’s two superpowers have risen to their most dangerous level in decades as the coronavirus pandemic rages through the US and Beijing cracks down on Hong Kong’s autonomy.
And that was before more recent tensions arose. Those include the president playing hardball over Tik-Tok and WeChat. In a tit-for-tat move, China on Monday announced sanctions on a number of US officials, including Senators Cruz and Rubio.
Domestic threat
Most important economic data have recently been looking good. But you need to see them in their wider context.
First, they follow disastrous lows. You expect record gains after record losses.
And, secondly, the pandemic is far from over, with some places still recording frightening numbers of new cases and deaths.
So, while good news is more than welcome, it can mask the devastation wreaked on the economy by COVID-19.
Worries
Some concerns that remain valid include:
- We’re currently officially in recession
- Unemployment is expected to remain elevated for the foreseeable future — Today’s new claims for unemployment insurance came in at 963,000, appreciably better than the previous week’s 1.19 million. But that was the first time they’d fallen below the million mark in 20 weeks. And all such figures would have been unthinkably high at the start of this year
- The first official estimate of gross domestic product during the second quarter showed an annualized contraction of 32.9%. When you look at the second quarter in isolation (not annualized), the fall in economic output was about 9.5% in those three months
- On June 1, the Congressional Budget Office reduced its expectations of US growth over the period between 2020 and 2030. Compared with its forecast in January, the CBO now expects America to miss out on $7.9 trillion in growth over that decade
As International Monetary Fund (IMF) Chief Economist Gita Gopinath put it a while ago: “We are definitely not out of the woods. This is a crisis like no other and will have a recovery like no other.”
Third quarter GDP
Need cheering up after all that? The Federal Reserve Bank of Atlanta‘s GDPnow reading suggests we might see growth in the third quarter of 20.5%, according to an Aug. 7 update.
But, again, that’s an annualized rate. So it has to be compared with the 32.9% lost in the second quarter. And there’s still time for the economy to fall back if more lockdowns are needed or federal benefits — whether those announced by the president or some subsequent Congressional package — take a long time to implement.
Still, we might be looking at a light at the end of this pitch-dark tunnel.
Markets seem untethered from reality
Many economists are warning that stock markets may be underestimating both the long-term economic impact of the pandemic and its unpredictability. And some fear that we’re currently in a bubble that can only bring more pain when it bursts. ING Chief International Economist James Knightley was quoted by CNN Business on Aug. 2 thus:
With virus fears on the rise, jobs being lost and incomes squeezed, we feel the recovery could be much bumpier than markets seemingly do, and think we are in for some data disappointment over the next couple of months.
Economic reports this week
It’s another busy week for economic reports. And tomorrow’s the day to watch out for. That brings retail sales, industrial production and the consumer sentiment index.
True, there were inflation measurements earlier in the week. But it’s been a long time since they looked worrying. Still, some economists think they might raise concerns again soon. And yesterday’s consumer price index and Tuesday’s producer price index won’t have allayed fears.
Investors will also have noted this morning’s weekly unemployment numbers. They dipped below 1 million for the first time in 20 weeks.
Forecasts matter
More normally, any economic report can move markets, as long as it contains news that’s shockingly good or devastatingly bad — providing that news is unexpected.
That’s because markets tend to price in analysts’ consensus forecasts (below, we 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.
And 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.
This week’s calendar
This week’s calendar of important, domestic economic reports comprises:
- Monday: Nothing
- Tuesday: July producer price index for final demand (actual +0.6%; forecast +0.3%)
- Wednesday: July consumer price index (actual +0.6%; forecast +0.4%) and core CPI* (actual +0.6%; forecast +0.2%).
- Thursday: Weekly new jobless claims to August 8 (actual 963,000 new claims for unemployment insurance; forecast 1.08 million)
- Friday: July retail sales (forecast +2.0%) and retail sales less autos (forecast +1.1%). Plus July industrial production (forecast +2.5%) and capacity utilization** (forecast 70.4%). And August consumer sentiment index (forecast 71.9 index points)
*Core CPI is the consumer price index with volatile food and energy prices stripped out.
** Capacity utilization is the percentage of the nation’s manufacturing and production capabilities that are actually being used.
As is often the case, Friday’s the big day this week.
Rate lock recommendation
The basis for my suggestion
Other than on exceptionally good days, I suggest that you lock if you’re less than 15 days from closing. But we’re looking at a personal judgment on a risk assessment here: Do the dangers outweigh the possible rewards?
At the moment, the Fed mostly seems on top of things (though rises since its interventions began have highlighted the limits of its power). And I think it likely it will remain so, at least over the medium term.
But that doesn’t mean there won’t be upsets along the way. It’s perfectly possible that we’ll see periods of rises in mortgage rates, not all of which will be manageable by the Fed.
That’s why I’m suggesting a 15-day cutoff. In my view, that optimizes your chances of riding any rises while taking advantage of falls. But it really is just a personal view.
Only you can decide
And, of course, financially conservative borrowers might want to lock immediately, almost regardless of when they’re due to close. After all, current mortgage rates are near record lows 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. Make sure your lender is ready to act as soon as you push the button. And continue to watch mortgage rates closely.
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.
Closing help
At one time, we were been providing information in this daily article about the extra help borrowers can get during the pandemic as they head toward closing.
You can still access all that information and more in a new, stand-alone article:
What causes rates to rise and fall?
In normal times (so not now), 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.
Mortgage rates FAQ
Average mortgage rates today are as low as 2.875% (2.875% APR) for a 30-year, fixed-rate conventional loan. Of course, your own interest rate will likely be higher or lower depending on factors like your down payment, credit score, loan type, and more.
Mortgage rates have been extremely volatile lately, due to the effect of COVID-19 on the U.S. economy. Rates took a dive recently as the Fed announced low-interest rates across the board for the next two years. But rates could easily go back up if there’s another big surge of mortgage applications or if the economy starts to strengthen again.
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.
Verify your new rate (Aug 13th, 2020)
