May 13, 2016
Mortgage rates found their footing today, moving sideways to slightly lower after losing ground the past two days. Earlier this week, rates hit their lowest levels in 3 years. While today's improvements don't quite get us back there, they keep us very close. Perhaps even more importantly, underlying bond markets ended the week with an even stronger move toward lower rates.
Lenders set rates based primarily on trading levels in mortgage-backed-securities, a bond-like financial instrument that tends to move in the same direction as 10yr US Treasuries and by a similar amount. It's not uncommon for lenders to shy away from aggressively adjusting rate sheets to reflect changes in trading levels on a Friday afternoon. As such, if markets are merely in somewhat similar territory at the beginning of next week, rate sheets should be even better. In other words, the market improvements came too late in the week to have a big effect on mortgage rates, but that means we start out with an advantage next week, unless bond markets happen to be in very rough shape.
Loan Originator Perspective
"The benchmark 10 year note has broken a key floor of resistance. I was hopeful of a rally after the final auction on Thursday, looks like we got it today rather than late yesterday. I have never been a fan of locking on Friday's, so like yesterday I continue to favor floating. Let's see if this rally can continue." -Victor Burek, Churchill Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.5 - 3.625%
- 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.
- The Fed's most recent announcement at the end of April reinforced their cautious approach to rate hikes. The last time that happened, stocks cheered, but this time they've been moving lower. Bond markets like that, and they'll continue to like it until stocks prove they can break back above 2015 highs.
- Even though the broader backdrop has taken a positive turn for rates, there are still tactical opportunities to lock. In general, we look for any prolonged moves lower (i.e. 10 days in a row without moving higher) or any major low-rate milestones (i.e. 3-year lows).
- 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).