April 19, 2016
Mortgage rates held steady again today, despite some weakness in underlying bond markets. When it comes to setting rates for the day lender rate sheets almost always follow the movement in the underlying bond market (specifically, mortgage-backed securities, which tend to move like a slightly less volatile version of 10yr Treasuries). On occasion, there will be movement in the bond market that is not reflected on lender rate sheets. Today is one such day.
Bonds are currently pointing to slightly higher rates, yet the average lender is unchanged compared to yesterday's latest levels. This has to do with today's trading momentum in bonds. They pointed to higher rates in the early morning, but recovered just before mortgage lenders sent out rate sheets. As such, lenders were perhaps a bit more conservative than they might have been if markets were simply unchanged versus yesterday. Several hours later, bond markets began slipping, again pointing to slightly higher rates. A small minority of lenders may adjust rates between now and the end of business today, but not enough to push the average off course.
This discrepancy between what markets are saying and what lenders are offering is useful. It lets us know that--all things being equal--rates will be slightly higher tomorrow if bond markets don't budge from here. The catch is that they usually do budge, but the point is that the imbalance tips the scales just slightly in favor of locking. And the scales were already looking a bit tippy.
With rates near recent lows and some apparent resistance to further improvement, locking is a more compelling option than it had been a few weeks ago. What about floating? There's a place for that strategy as well, as long as you understand the risk that markets could move against you and you're prepared to lock at a higher rate if markets move too much.
Loan Originator Perspective
"We’ve spent most of April in a tight range and are currently sitting near the top. If the range gives way look out! I like locking here, we’re not far off recent low levels and we could easily break out to the high side any day. I recommend paying defense right now." -Jason B. Anker, Vice President- Loan Officer at Salem Five
Today's Best-Execution Rates
- 30YR FIXED - 3.625%
- FHA/VA - 3.25%
- 15 YEAR FIXED - 2.875 - 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 HAD been leaning toward locking since March 1st, which has proved to be a very solid strategy, but began to reconsider starting the 3rd week of the month. We've been more open to the idea of floating since then, as long as you're setting a stop-loss level somewhere overhead, meaning you'd lock to avoid further losses if markets move against you.
- 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).