May 17, 2016
Mortgage rates moved higher today as investors sold assets ahead of tomorrow's Fed Minutes. Asset prices move lower when sellers outweigh buyers, and when the price of bonds moves lower, rates rise. This was most evident in the shorter-term bonds that react more to the Fed Funds rate. In other words, 2yr Treasury yields rose more than 10yr Treasury yields or mortgage rates.
In fact, today's increases in mortgage rates were fairly gentle by comparison--so gentle that we might worry that we're seeing a bit of a delayed reaction. This has been a common theme in recent weeks, but has tended to happen in the other direction (where bond markets suggest rates should have moved lower on any given day only for it to happen the following day. Simply put, bonds markets are suggesting rates should have moved higher today. As such, we begin tomorrow at a disadvantage because rates likely will be higher even if bond markets don't change overnight.
Loan Originator Perspective
"MBS prices drifted further lower today, and rate sheets reflected small losses. Consumer inflation for April was the highest in several years, which hurts loan pricing. Tomorrow the Fed's April meeting minutes are released, if their comments were more economically bullish than expected, rates will continue upward. We're off the recent low end on rates, the question is whether we continue upward, and if so, for how long. My pipeline is 90% locked, nice to not be concerned about my borrowers' pricing changing." -Ted Rood, Senior Originator
"FOMC minutes tomorrow. Lock or float? Data has been mixed to better over the last week or so but rates have been pretty resilient in the lower end of the current range. What’s your risk tolerance? Rates are near 3 year lows. If you’re closing in the next few weeks locking may help you sleep better. If not see what 2pm tomorrow brings and have your LO keep their hand near the lock trigger." -Jeff Anderson, Loan Officer, Salem Five Mortgage, LLC
"Tomorrow could be volatile with the release of the FOMC minutes from last meeting. Our benchmark 10 year note has been holding between 1.76 and 1.70 for the last couple weeks. We are currently toward the upper end of that range which brings up the saying float the highs, lock the lows. If you are happy with your rate quote, why not lock today. I do not see a huge rally breaking the 1.70 floor inside the next couple weeks, so there isn't much to be gained but you do have quite a bit to lose." - Victor Burek, Churchill Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 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. This helped rates improved through mid May
- Now some investors are getting concerned that the Fed may be more prepared to hike rates than markets currently expect. This could create volatility and pressure toward higher rates heading into the June Fed meeting, thus favoring locking vs floating.
- 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).