May 2, 2016
Mortgage rates moved just slightly lower today, despite the fact that bond markets were suggesting a move in the other direction. Mortgage rates are primarily determined by the prices of mortgage-backed-securities (MBS), which tend to behave a lot like 10yr Treasuries over time. Both Treasuries and MBS lost ground today, meaning their prices moved lower and their yields moved higher. This typically results in mortgage lenders offering slightly higher rates, but it was not the case today. What gives?
There are at least two factors to consider when trying to piece together justification for today's rate sheet resilience. First of all, lenders hadn't fully adjusted rate sheets to replect the gains seen last Friday. In fact, lenders have consistently been hesitant to get too aggressive with rates already as low as they are. Point being, there's extra room for markets to weaken a bit without necessitating big changes in lender rate sheets. The more immediate concern is the fact that today's weakness simply wasn't quite enough for the average lender to recall and reissue rate sheets. In those cases, we head into the following day at a slight disadvantage. Simply put, if bond markets held completely steady through tomorrow morning, the average lender would likely move slightly higher in rate.
Loan Originator Perspective
"Not a great start to the week or the new month, but it could always be worse. We are trading in a confined range for now, and personally I think it's great. Interest rates are low, and with the trade being confined in a tight range it really allows for a little bit of stability in the range of rates for borrowers. This current range allows for more time to make a decision in locking." -Constantine Floropoulos, VP, The Federal Savings Bank
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.
- 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, a window of opportunity may be opening up after the Fed avoided sending any clear warnings about a June rate hike. 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).