January 15, 2016
Mortgage rates surged lower at the quickest pace of the year today as stocks and oil prices continued suffering heavy losses. At present, investors are fleeing from these riskier assets and seeking safer havens in the bond market, including the bonds that back mortgages. As demand rises for bonds, rates fall. Some of the more aggressive lenders are now back down to quoting conventional 30yr fixed rates of 3.75%--the lowest since late April, 2015.
There's no telling how long the current trend will last. Just yesterday, the momentum was showing signs of wavering, and here we are today with the strongest day of the year. The lesson is that rates remain much more dependent than normal on the fluctuations in stocks and other markets. As long as investors are abandoning other assets and seeking the relative safety of bond markets, the rate rally can continue. Conversely, as soon as stocks finally bounce in a meaningful way, the party is over for mortgage rates. The big question is whether such a bounce happens soon or if this is merely the start of a much bigger sell-off in stocks, such as those that followed the peaks in 2000 and 2007.
Loan Originator Perspective
"Equity markets continued plummeting today, and MBS caught some bids, improving by about 25 bps mid-afternoon. My rate sheets didn't reflect the entire gains, it's not uncommon for lenders to price conservatively into 3 day weekends. Treasury yields stalled after dropping to 2.0%, and the question is whether rates bounce back upward, or continue dropping from here. I locked a couple of new loans, but wouldn't chastise those wanting to float. Locking/floating at best pricing since early November is a great problem to have!" -Ted Rood, Senior Originator
"Falling stocks and oil continues to benefit mortgage rates. With a 3 day weekend ahead, lenders will be conservative passing along the improvements citing volatility as the reason. I would float over the long weekend and see what Tuesday brings. The trend of falling stocks and oil looks like it may continue so floating seems like a good call." -Victor Burek, Churchill Mortgage
"WOW is all I have to say. The trap door may have opened for stocks today and the selling may continue further which can benefit rates. But lets be honest and say 2016 has been great for rates so far. knowing that I would be locking in and removing risk. Things could change to quickly in markets like this." -Manny Gomes, Branch Manager, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.75 - 3.875%
- FHA/VA - 3.5%
- 15 YEAR FIXED - 3.125%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- The Fed finally hiked on December 16th. The baseline implication would be steady pressure toward higher interest rates, but there's been "a catch" so far in 2016
- Global financial markets have come into the new year in distress. Major stock indices are plummeting around the world, and investors are seeking shelter in the bond market. When investor demand for bonds increases, rates fall.
- So we're left with a move toward the lowest mortgage rates in 7 months despite the Fed having just begun its hiking cycle. This paradoxical trend can continue as long as global risk markets continue selling-off. The big risk is for a big bounce if global risk markets happen to find their footing.
- 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).