April 27, 2016
Mortgage rates caught a break today! After having moved sideways or higher for the past 7 days, and spending the last 3 at the highest levels in more than a month, rates finally moved lower, albeit modestly. The friendly push came from the Federal Reserve after it released its monetary policy announcement this afternoon.
Market participants were nervous that the Fed would do something to hint at a rate hike in June, much like it hinted at the December hike in the October Announcement. While the Fed doesn't directly control mortgage rates, the sooner they hike, the sooner it makes "money" more expensive for everyone. That thesis was reflected in the fact that stocks and oil prices also improved after today's announcement. In other words, everyone was happy that money has a chance to stay a bit cheaper a bit longer. If the Fed had, indeed, hinted at a June hike today, all of the "happy" asset classes likely would have been "sad" today (meaning higher rates and lower stocks/oil).
The best part about today's improvements for mortgage lenders is that the average lender hasn't even scarcely begun to pass along the gains implied by the market improvements. In fact several lenders didn't even update rate sheets from this morning. That means we're starting tomorrow with a handicap in our favor. If markets merely hold steady, rate sheets will improve. Of course there's never a "sure thing" when it comes to floating, but this is certainly a case where the risks are lower than normal. If rates happened to be moving higher tomorrow morning, it shouldn't be by much.
Loan Originator Perspective
"Today's Fed announcement was rather boring but according to market reaction was favorable for bonds. As of 3pm, the benchmark 10 year has been able to regain the losses of the past 2 days. If you floated into today, I would definitely float overnight to allow lenders the time to pass along the gains. Plus, it will allow time to see if the trend might be turning in our favor." -Victor Burek, Churchill Mortgage
"Bond markets breathed a sigh of relief today, as the FOMC's statement didn't reference looming inflation or booming economic conditions. Since the statement was released, MBS have gained roughly 25 bps, but few lenders have repriced better (yet). It's far too early to say if today's events will incite a lasting rally, but at least we survived the statement without losing ground. I still say we need bigger, "worser" news to start the next leg down in rates, the question is where that news comes from, and when. Less risk in floating now than there was yesterday, so if you floated until now, congrats, just be careful to watch developments." -Ted Rood, Senior Originator
"Floaters made the right choice yesterday, however we did not break through certain important resistance levels. Not much to say here, if your loan is set to close inside of 10-15 days locking is the wise move, longer time frames can consider floating into the week." -Constantine Floropoulos, VP, The Federal Savings Bank
Today's Best-Execution Rates
- 30YR FIXED - 3.625-3.75%
- 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 have seen only brief episodes of volatility in a low, narrow range.
- Some of the forces that had been helping rates are now at risk of reversing course. Namely, stocks and oil have been trying to break higher and European bond markets bounced near all-time lows.
- After being "lock-biased" for several weeks, Wednesday the 27th offers a brief window of opportunity (it could be more than brief, we'll see...) where lenders have extra room to improve rate sheets on Thursday morning if markets hold steady. We'll reassess the broader trend by the end of the week.
- 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).