May 25, 2016
Mortgage rates didn't move much today, depending on the lender. Most of the movement seen was toward slightly higher levels. The bond markets that underly mortgage rates remain under pressure after last week's Fed Minutes showed widespread support for a Fed rate hike in June or July. Since then, several Fed speakers have echoed the sentiment in no unspecific terms.
The Fed Funds Rate does not directly dictate mortgage rates, even though the two tend to move in the same direction over time. The Fed only adjusts its rate at scheduled Fed meetings 8 times a year (and very rarely at unscheduled meetings). Mortgage rates, on the other hand, can move every day and sometimes multiple times per day. So they have a chance to react to changing market sentiment in real time. That's the driving force behind last week's move toward higher rates and the reason we remain at those same rates today.
We've now spent a full week with the most prevalent conventional 30yr fixed rate quote at 3.75% on top tier scenarios. Before last week's Fed Minutes, it had been 3.625%.
Loan Originator Perspective
"I am watching the 10 year yield and generally favor floating unless a convincing break of 1.88 occurs. Even then, I'm not too optimistic about major improvements unless we can break through the lower end of the range we seem to have been stuck in for quite some time now. In either case, the next move would likely be big, so we float in hopes it goes in our favor, but remain ready to lock at a moment's notice if it does not." -Steve Chizmadia, Mortgage Advisor, Finance of America Mortgage, LLC.
Today's Best-Execution Rates
- 30YR FIXED - 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.
- 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).