August 14, 2015
Mortgage rates were just slightly higher on average for a third straight day. Much of this week was spent focusing on the effects of China's decision to (sort of) stop manipulating its currency. That was good for rates on Tuesday. As soon as China (sort of) started manipulating its currency again, rates began moving higher. If you need to catch up on that, we discussed it in more detail yesterday. Long story short: there was some drama that resulted in low rates, and once the drama ebbed, rates moved back up.
Today was less about China and more about domestic economic data. In general, it continues to argue against some of the weaker data seen last week. Both of this morning's key reports were stronger than expected--one of them suggesting stronger inflation, the other, stronger manufacturing. Stronger economic data tends to push rates higher and today was no exception, although the move was fairly well-contained.
To reiterate yesterday's thoughts on locking and floating, this move higher in rates suggests the recent positive trend (beginning July 14th) might be over. It's a good time to take advantage of the gains we've seen between now and then. While there's never any way to know if the weakness will continue, we do know how much ground we've gained AND how close we are to multi-month lows. Think of it in terms of cashing in gains that have already been realized as opposed to rolling the dice on gains that might not come.
Most lenders continue to quote conventional 30yr fixed rates of 4.0% for top tier scenarios, though closing costs would be slightly higher today vs yesterday. There are still a few lenders on either side of that by an eighth (3.875% or 4.125%).
Loan Originator Perspective
"Mortgage Rates remained the same today. After weeks of rallying, this week resulted in a pull back and I think it adds strength to the decision to float. The 10 year remained under 2.2 and this week of taking gains leads toward the opportunity of lower rates ahead. I personally think floating into next week, at a minimum, is a good strategy." -Brent Borcherding, brentborcherding.com
"Stronger economic data here resulted in lenders worsening rate sheets when compared to yesterday. As of about noon eastern, all the loses with MBS have been erased and a couple lenders have already repriced for the better. Since we appear to be heading toward a good closing, and I am not a fan of locking on Friday's, I favor floating loans over the weekend. As always, if you are happy with the current quote, nothing wrong with locking and eliminating the chances of getting a worse rate next week." -Victor Burek, Churchill Mortgage
"Rates were largely unchanged today, despite MBS wandering higher/lower before closing flat. It appears Chinese monetary drama is no longer a large factor, which puts bonds back in the "what will move us next" holding area. Rates are still better all but a few of the last 30 days, which looks like great logic to lock. If you float, remember that gains can vanish as quick/more quickly than they appear." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 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).