March 23, 2016
Mortgage rates moved slightly lower today, recovering some of their losses from the first two days of the week. The average lender continues to quote conventional 30yr rates in a range of 3.75% to 3.875%, but today's gains bring a few of the more aggressive lenders back to 3.625% on top tier scenarios. Day over day changes are hit and miss though. Some lenders barely budged from yesterday's rates despite the gains in underlying markets.
Today's improvements were symbolically important for those who follow the broader trends in rates. This has to do with the financial concept of inflection points, which are certain levels in rates (or any other financial instrument) where rates tend to bounce rather than continue in the same direction. For instance, 3.875% is an approximate inflection point in 30yr fixed rates. We've approached it many times from above and bounced back up to the 4.0-4.25% range. In late 2012 and some of early 2015, we approached it from below and bounced back into the 3.5-3.75% range.
It's not that rates don't cross inflection points. Rather, it's the tendency to avoid crossing that is important because it means rates are less likely to return below 3.875% if they break firmly above. We just fought off such a break last week, and after yesterday, we were quickly approaching the same levels. Long story short, today's improvements mean we don't have to be quite as anxious about a sharper move toward higher rates. The other takeaway is that risk takers can continue to use that inflection point as a trigger to lock.
Loan Originator Perspective
"Bonds bounced back today, as oil prices dropped for a change. Treasury yields broke their recent 1.92 resistance level, which is welcome news, provided it lasts. I don't see today as the start of a huge rally, but hopefully it at least signals stabilizing rates. Certainly nothing wrong with locking (many lenders repriced better mid day) today. If you're floating, have a defined target that's clear to your loan officer, not "I'd like rates to go down, then lock." -Ted Rood, Senior Originator
"Most of yesterday's losses have been recovered today, but rate sheets are lagging. With this being a holiday week, I like floating here until next week. Lenders will be slow to pass along the gains. In addition, month end tends to be supportive of the bond markets. So if float, I would plan on floating until Monday." -Victor Burek, Churchill Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.75%
- FHA/VA - 3.25-3.5%
- 15 YEAR FIXED - 3.00
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- The Fed finally hiked on December 16th, causing fears of rising rates in 2016, but markets began the new year with rates moving surprisingly lower. Major losses in stocks and oil prices were part of the same trend of investors moving away from risk.
- After bottoming out fairly close to all-time lows in February, rates began to rise somewhat sharply in March as market panic subsided and as the Fed signaled it would probably still hike rates in 2016--just not as quickly as anticipated.
- It remains to be seen whether markets can continue to move in this risk-friendly direction (read: bad for rates, good for stocks). Stocks have yet to break out of a gradual downtrend that began in mid-2015. If they do, it could keep pressure on rates to continue higher.
- We've been leaning toward locking since March 1st, which has proved to be a very solid strategy. The 3rd week in March is the first time that it made much sense to reconsider that strategy, but we still haven't seen enough of a turnaround to pull the trigger firmly. In other words, risks remain that rates are in the earlier stages of a longer term trend higher.
- 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).