Mortgage rates continued lower today, bringing most lenders to their best levels in more than 3 months.  The average conventional 30yr fixed rate for top tier scenarios is now edging closer to 3.875%, though 4.0% is nearly as prevalent.  By a small margin, today's rates are the lowest since late May.  Some borrowers will see the improvement in the form of slightly lower closing costs for the same rates quoted yesterday.  Over the past two days, many scenarios will now be looking at an eighth of a point lower in rates. 

So what gives?  Isn't the Fed supposed to raise rates soon and aren't rates just supposed to get higher in 2015? 

Yes and no.  While it's true that the consensus in the media is for higher rates in 2015, markets have a funny way of punishing viewpoints that are out of balance.  The higher rate bandwagon may have been a bit too full, in other words.  This is one way to look at it.

The other way to look at today's "lowest rates in 3 months" is to consider that if rates bounced here, it would still be a "higher low" than the one seen in April.  April itself was a higher low than the one seen heading into February.  In other words, yes, things have been awesome for more than a month now, but that could still fit in a bigger picture move toward higher rates.

I say all this not to suggest that we're about to bounce much higher, but simply to keep the outlook balanced.  Rates could indeed resume their upward slog, but we're also definitely seeing a shift in the tone from the average talking head (or journalist, or trader, etc.).  It's important to understand that such a shift would take a long time to play out.  It's not something that suggests changing your lock/float strategy.  In that regard, 3-month lows in rates are always a good opportunity.  If the bigger picture shift ends up playing out, you'll be able to refi next year anyway.

Loan Originator Perspective

"For several weeks now we've been bouncing within a range with rates improving followed by a worsening followed by improvement and rinse and repeat. No assurances of course that the trend will continue. While we appear to be threatening to break out of the trend to the downside there are no guarantees and risks remain that we return to the high end of our range in short order. I would be protecting these gains we have now if your closing is within 30 days. If you're closing beyond 30 days you simply need to assess your risk tolerance in deciding whethe or not to gamble on better pricing." -Hugh W. Page Mortgage Banker, SeacoastBank

Today's Best-Execution Rates

  • 30YR FIXED - 3.875 - 4.0%
  • FHA/VA - 3.75%
  • 15 YEAR FIXED - 3.25%
  • 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

  • 2015 began with a strong move to the lowest rates seen since May 2013.  The catalyst was Europe and the introduction of European quantitative easing.  Investors bet heavily the move lower in European rates and domestic rates benefited as well.  But with those bets finally drying up in April and with the Fed seemingly intent on hiking rates in the US, May and June saw a sharp move back toward higher rates.  The implicit fear is that global interest rates set a long term low in April, and have now begun a major move higher.

  • July said "not so fast" to that potential "big bounce."  Some of the data began to suggest the Fed is still a bit too early in talking about raising rates in 2015--particularly, a lack of wage growth or any promising signs of inflation.  But Fed proponents maintain that low inflation is a byproduct of temporary trends in the value of the dollar and the price of oil, and that once these factors  level-off, inflation will ultimately return.  That side of the argument suggests that inflation could increase too quickly if the Fed hasn't already begun normalizing interest rates.
  • With all of the above in mind, locking made far more sense for the entirety of May and June, and we were not shy about saying so.  The second half of July saw that conversation shift toward one where multiple outcomes could once again be entertained.  In other words, we went from "duck and cover!" to "let's see where this is going..."  

  • Bottom line, locking is always the safest bet and it was the only bet from late April through early July.  Since then, there's been room for other points of view.  We should know a lot more about how valid those points of view are as August and September progress.

  • As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, conventional 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.'  Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy.  It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).