Mortgage rates today, September 4, 2020, plus lock recommendations

Forecast plus what’s driving mortgage rates today

Average mortgage rates just inched higher yesterday. It’s not time to panic yet. They’re still very close to their all-time low. Conventional loans today start at 2.875% (2.875% APR) for a 30-year, fixed-rate mortgage. 

First thing, this morning’s good employment figures were enough for stock markets to recover some of the ground they lost yesterday and for Treasury yields to receive a boost. Normally, we’d expect that to feed through into higher mortgage rates. And it might well. But these are far from normal times and our confidence in such predictions is low.

Find and lock current rates. (Sep 16th, 2020)

• 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 affecting rates.

And the Fed’s influence is not insignificant. It’s bought more than $1 trillion in mortgage-backed securities purchases since the restarting of quantitative easing on March 16.

But, if you still want to take your cue from markets, earlier this morning things were looking worse for mortgage rates today. Why? It’s those pesky good employment figures this morning. But they’re not pesky if you need a job.

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 morning, were:

• The yield on 10-year Treasurys climbed to 0.68% from 0.64%. (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 mixed but mostly higher. (Bad 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 $40.83 from $40.80 (Neutral for mortgage rates* because energy prices play a large role in creating inflation and also point to future economic activity.) 
• Gold prices fell to $1,934 an ounce from $1,946. (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 fell to 61 from 74 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

*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 combined with relatively benign markets. 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, bad news about COVID-19 or its economic effects 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.

By all means, rely on Freddie’s accuracy over time. But not necessarily each day or week.

Long-term hope?

Last week, the Federal Reserve changed its long-standing policy. From now on, it will prioritize boosting employment over containing inflation. Of course, it has no intention of letting inflation run riot. But the subtle shift is important.

And it may well lead to low or lower interest rates (including those for mortgages) for years to come. However, don’t expect a smooth ride. When it comes to mortgage rates, ups and downs are pretty much inevitable.

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.

The future

Overall, we still think it possible that the Federal Reserve’s going to drive rates even lower over time. It’s already bought more than $1 trillion worth of mortgage-backed securities.

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.

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 Mortgage Bankers Association (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 latest 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. In mid-August, Fannie and the MBA refreshed theirs. 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%	2.9%
Freddie Mac	3.5%	3.4%	3.3%	3.3%
MBA	3.5%	3.2%	3.0%	3.1%

The Aug. 17 update from Fannie included the prediction of a 2.9% average rate for the fourth quarter of this year. That was the first time we’ve seen a forecast from any of these organizations for a sub-3.0% rate during 2020.

Of course, none of these quarterly forecasts excludes daily or weekly averages below (or above) the levels they suggest during any quarter. After all, quarterly averages can include some quite sharp differences between highs and lows.

Fannie and the MBA were a bit more optimistic about future rates in their August (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 2.8% during the first quarter of next year and then inch down to 2.7% for the remainder of 2021.

Meanwhile, Freddie’s anticipating 3.2% throughout that year. And the MBA thinks it will be back up to 3.1% for the first three quarters of 2021 and then nudge up to 3.2% for the last. Indeed, the MBA reckons rates will average 3.6% 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.

The FHFA debacle

This is the story behind the sharp increases in mortgage rates on Aug 13 and 14. 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 imposed a new, additional closing cost.

This only applies to those Fannie and Freddie refinances with balances higher than $125,000. And HomeReady and Home Possible refinances are exempt.

Unless your loan closes before Dec. 1 (it was Sept. 1 before last Tuesday), 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).

That Dec. 1 cutoff date applies to the date on which Fannie or Freddie actually guarantees your loan. And that may be after you close. So, if you’re after one of their refinances and want to stand a good chance of getting in under the wire, you need to get a move on.

Change from the FHFA — Aug. 25 announcement

Until last Tuesday, if you’d already locked in your refinance but would close after Aug. 31, it may have been the lender who picked up the tab. But mortgage companies often operate on wafer-thin margins. So they passed on the cost — through higher mortgage rates — to new applicants (and those who are yet to lock) for all types of mortgages. Hence the higher mortgage rates all round following the announcement.

Last Tuesday, the FHFA caved under pressure from the mortgage industry and legislators. It hasn’t scrapped the new fee. But it has put back its implementation by three months. And that should get lenders off the hook for nearly all currently locked loans, and allow them to pass the new fee directly to the borrowers affected rather than spread the pain across all new borrowers.

It may well be that last Wednesday’s big fall in average mortgage rates was a result of those lenders adjusting to the previous day’s news. And that at least some of the subsequent falls also stem from this.

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.

There have undoubtedly been huge improvements in many aspects of the economy since the darkest days of the pandemic. But some fear that the recovery from the worst effects of that time is slowing as Covid-19 spreads to previously unaffected parts of the country.

The Federal Reserve is concerned about:

1. Stubbornly high unemployment
2. Economic uncertainty
3. Political deadlock that’s stalled further stimulus measures
4. Possible credit tightening by banks and other lenders if things don’t get better quickly

COVID-19 still a huge threat

The COVID-19 pandemic and its economic implications are the single biggest influences on markets at the moment. And nationwide 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.

A second wave?

Now there are more grounds for concern. Several countries that seemed to have their outbreaks under control a couple of months ago (including South Korea, Spain, Germany, France and Italy) are experiencing new spikes in infections. As importantly for markets, recent economic data out of Europe suggest this may be causing a slowing of the recovery there.

Is such a second wave the fate that awaits the United States and its economy after it winds down antivirus measures?

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 current, third quarter of 29.6%, according to an Sept. 3 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 if federal aid — whether those announced by the president or some subsequent Congressional package — takes 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.

But it’s not just economists who are concerned. According to a survey published last Thursday by Deloitte, 84% of Fortune 500 chief financial officers (CFOs) reckon the US stock market is overvalued. As soberingly, only 42% expect better economic conditions in this country within the next year, according to a CNN Business report.

Did the bubble start to burst in stock markets yesterday? Or was it just a bad day in Wall Street offices? Time will tell. But it was certainly a terrible few hours: the Dow Jones Industrial Average fell 2.78%, the S&P 500 was down 3.5% and the Nasdaq fell 4.9%

Economic reports this week

Employment has been on investors’, analysts’ and traders’ minds all this week. There had been a couple of less important employment reports earlier in the week (one good, one bad) but this morning’s official, monthly employment situation report was always the one that really counted.

And it contained better-than-expected news with more new jobs, a lower unemployment rate and higher average hourly earnings than most predicted.

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: August ISM* manufacturing index (actual 56.0%; forecast 54.7%) and July construction spending (actual +0.1%; forecast +1.0%). Also, motor vehicle sales** for August will emerge during the day as manufacturers release their sales figures (no forecast but 14.5 million new vehicles sold in July )
  
• Wednesday: August ADP employment report (428,000 new private-sector jobs; no MarketWatch forecast but CNBC says Wall Street expected 1.17 million) and July factory orders (actual +6.4%%; forecast +6.2%)
  
• Thursday: Weekly new jobless claims to August 29 (actual 881,000 new claims for unemployment insurance; forecast 950,000). Also the July trade deficit (actual -$63.6 billion; forecast -$58.7 billion). Plus revisions to second-quarter productivity (actual +10.1%; forecast +8.3%) and unit labor costs (actual +9.0%; forecast +10.5%) figures. And finally, August ISM* services index (actual 58.1%; forecast 57.0%)
  
• Friday: August employment situation report, comprising nonfarm payrolls (actual 1.37 million new jobs; forecast 1.20 million), unemployment rate (actual 8.4%; forecast 9.8%) and average hourly earnings (actual +0.4%; forecast 0.0% — unchanged)

*ISM is the Institute for Supply Mangement, the body that conducts the surveys and compiles the figures

**These figures are seasonally adjusted annual rates (SAARs). In other words, they show what would happen were the data for the reported period replicated for 12 consecutive months or four consecutive quarters. It sounds weird but it can be a useful measure, providing you understand what you’re looking at

Today was 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 exceptional 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

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 (Sep 16th, 2020)

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