Mortgage rates today, August 11, 2020, plus lock recommendations | Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports

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Forecast plus what’s driving mortgage rates today

Average mortgage rates held steady again yesterday. So they’re still as close as it’s possible to measure to last week’s record low. Conventional loans today start at 3.125% (3.125% APR) for a 30-year, fixed-rate mortgage.

Mortgage rates broke with other markets yesterday. Stocks and Treasury yields mostly moved decisively as many investors showed faith in President Donald Trump’s weekend initiatives to boost the economy. But mortgage rates were unmoved. Was that the Federal Reserve intervening? Or might those rates catch up today, which would see them go higher?

Find and lock current rates. (Aug 11th, 2020)
Program Rate APR* Change
Conventional 30 yr Fixed 3.125 3.125 Unchanged
Conventional 15 yr Fixed 3 3 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 2.625 3.299 Unchanged
30 year fixed VA 2.75 2.926 Unchanged
15 year fixed VA 2.25 2.571 Unchanged
5 year ARM VA 2.5 2.433 Unchanged
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 bad for mortgage rates today.

Why? Investors still like the president’s stimulus package. And they’re buoyed by news that Russia has approved a COVID-19 vaccine for general use. The downside? It hasn’t finished its clinical trials yet.

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 soared to 0.64% from 0.55%. (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 sharply higher, with the NASDAQ the exception. (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 increased to $42.66 a barrel from $42.23 (Bad for mortgage rates* because energy prices play a large role in creating inflation and also point to future economic activity.) 
  • Gold prices tumbled to $1,963 from $2,050 an ounce. (Bad 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 inched up to 75 from 74 out of a possible 100 points. (Bad 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

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

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. And, last Wednesday, the organization confirmed that it planned to continue this policy 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 soon 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.

In its latest figures, for week ending July 24, the Mortgage Bankers Association calculated, “The Refinance Index decreased 0.4 percent from the previous week and was 121 percent higher than the same week one year ago.” Processing more than double the applications seen in more normal times must be a huge challenge.

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 neither markets nor the Fed can influence how this part of the pricing mechanism affects 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. So you can rely on Freddie’s accuracy over time, but not necessarily each day or week.

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. There were no talks yesterday and key figures are scattered across the country as they enjoy their recess. 

These are intended to boost the economy, principally by providing the unemployed with $400 in weekly benefits 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 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.

But there are other practical issues. For example, the unemployment relief program requires states to contribute 25% of the costs. And many of those are already in deep financial trouble.

The rest of 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. And that would defeat the object of the executive order, which was to 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 is exaggerating? Maybe. But the US economy relies heavily on consumer spending for its growth.

According to the Federal Reserve Bank of St. Louis, personal consumption expenditures contributed 67.1% of total gross domestic product in the second quarter of 2020. You might think that the removal of the now-expired $600 federal weekly unemployment benefit is likely to hit that hard.

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. Last Saturday, the nation reached a new, grisly milestone when the total number of infections reached 5 million.

But, finally, there may be a hint of good news in the figures. Since July 31, The New York Times has been reporting that the change in the number of new infections over the previous 14 days has turned negative: -18% yesterday. Of course, the actual numbers are still appalling, and 47,126 Americans were newly diagnosed yesterday. But that figure’s been consistently over 60,000 until recently.

Sadly, deaths remain at horrific levels. Yesterday the number was 537. However, according to the Times’s measure, the 14-day change for deaths turned negative (-6%) yesterday for the first time in what feels like ages. So there are better trends for both infections and deaths. We now have to hope they stay that way if rules on social distancing and face masks are relaxed.

But, 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. Yesterday, in a tit-for-tat move, China yesterday 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 states 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:

  1. We’re currently officially in recession
  2. Unemployment is expected to remain elevated for the foreseeable future — Last week’s new claims for unemployment insurance came in at 1.19 million, appreciably better than the previous week’s 1.43 million. But that was the 20th consecutive week during which new claims have topped the million mark. And all these would have been unthinkably high numbers at the start of the year
  3. 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
  4. 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

And yet, in spite of all the above, on June 30, US stock markets celebrated the end of their best quarter for more than a decade — by some measures since 1987. Various record highs have been reached since.

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 Friday’s the day to watch out for.

True, there are inflation measurements earlier. But it’s been a long time since they looked worrying, though some economists think they might again soon. And today’s producer price index for final demand won’t allay many fears.

Friday brings retail sales, industrial production and the consumer sentiment index.

Investors will also be keeping an eye on Thursday’s weekly unemployment numbers. If those fall below the million mark, we could see slightly higher mortgage rates.

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 (forecast +0.4%) and core CPI* (forecast +0.2%).
  • Thursday: Weekly new jobless claims to August 8 (forecast 1.08 million new claims for unemployment insurance)
  • 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 at or 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 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:

How to close on a mortgage during the COVID-19 pandemic

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.

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