Mortgage rates fell only modestly today despite a much stronger move in broader bond markets.  I spend a lot of time espousing the fact that rates are based on bonds, so it's fair to wonder how days like today happen.

Indeed, interest rates are based on bonds, but there are a wide variety of rates and bonds!  It's a common misconception that mortgage rates are actually and firmly linked to the 10yr Treasury yield.  In reality, this only appears to be the case because the bonds that underlie mortgage tend to move in the same direction as 10yr Treasuries.  The magnitude of their moves is also generally the same, but there are notable exceptions.  Today was one such exception.

In terms of bond prices, 10yr Treasuries did twice as well as mortgage bonds (technically MBS or 'mortgage-backed securities') today.  Even then, there's one more degree of separation between markets and the mortgage rates available to consumers. 

Mortgage lenders are tasked with creating rate sheets, electronic or otherwise, that spell out what they're willing to guarantee to borrowers on any given day at any given moment.  The rates offered on those rate sheets don't change from minute to minute as bond markets gyrate throughout the day, but if markets gyrate enough, lenders can "re-price" in the middle of a business day.  This generally happens on 1-2 days on any given week, and rarely more than once or twice during those days.

With all of the above in mind, today's mortgage rate situation suffers from two problemsFirst, Treasuries are doing a lot better than MBS (the bonds that underlie mortgages and mortgage rates).  Second, much of today's strength in bonds happened after lenders put out their first rate sheet and we haven't seen quite enough for the average lender to reprice.  The upside to all this is that tomorrow mornings rates should be even better, assuming bond markets remain in their present territory overnight.  


Loan Originator Perspective

Bonds benefitted from stocks' slide today, as we neared levels last seen over a month ago.  I'd love to conclude this is the start of a protracted rally, but it's too early for that.  I'm still locking applications closing within 30 days, but will discuss floating October closings with clients.   -Ted Rood, Senior Originator

Seeing an unexpected rally in bonds this morning, but the 10 year note so far has been unable to hold below 2.85.  With bonds at a floor of resistance, it makes sense to lock.  However, my rate sheets do not show the improved pricing, so if your pricing is the same as yesterday, i would float overnight then lock.  If your pricing is improved, go ahead and lock the lows. -Victor Burek, Churchill Mortgage


Today's Most Prevalent Rates

  • 30YR FIXED - 4.625-4.75
  • FHA/VA - 4.25-4.5%
  • 15 YEAR FIXED - 4.125%
  • 5 YEAR ARMS -  3.75-4.25% depending on the lender


Ongoing Lock/Float Considerations
 

  • Rates moved higher in a serious way due to several big-picture headwinds, including: the Fed's rate hike outlook (and general policy tightening), the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation.

  • Despite those headwinds, the upward momentum in rates has cooled off heading into the summer months.  This could merely be the eye of the storm, or it could end up being the moment where markets began to doubt that prevailing trends would continue.

  • It makes sense to remain defensive (i.e. generally more lock-biased) because the headwinds mentioned above won't die down quickly.  Temporary corrections can be explained away, but it will take a big change in economic fundamentals or geopolitical risk for the big picture to change.  While that doesn't necessarily mean rates have to skyrocket, there's a good chance it means rates will struggle to move much lower than early 2018 lows until more convincing motivation shows up.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders.  The rates generally assume little-to-no origination or discount except as noted when applicable.  Rates appearing on this page are "effective rates" that take day-to-day changes in upfront costs into consideration.