June 13, 2016
Mortgage rates haven't moved too much recently, and no one is complaining. While each of the past 5 days has only seen a modest drop in rates, they were already operating near 3-year lows. They officially hit new 3-year lows late last week, meaning today's modest improvement only takes us deeper into that territory.
It gets better. Three-year lows also happen to be pretty close to all-time lows. In terms of the average conventional 30yr fixed rate on a top tier scenario, we're talking about the difference between 3.5% today and 3.25% in late 2012. Those all-time lows were only available for a few weeks back then, and it was 3.375% that was the most commonly-quoted rate "all-time low" from there on out. So that's an eighth of a point between now and then--roughly $12/month on a $200k loan.
Low rates thrive on economic negativity, among other things, and there are several big events that could make things look better or worse in the short term. For now, the important thing to know is that markets are generally positioned fairly defensively, meaning they're expecting the more negative potential outcomes (thus buying safer-haven bonds, which pushes rates lower). One of the biggest fears at the moment is the potential for The UK to vote to exit the European Union next week (aka "Brexit"). The unknown outcome will likely keep a lid on bigger rate spikes between now and then, but several upcoming events can still cause enough volatility to be unpleasant. Those begin with tomorrow morning's economic data and reach their peak with Wednesday's Fed Announcement.
Bottom line: the bigger-picture trend is friendly, but it is facing some psychological resistance as rates approach all-time lows. Neither locking nor floating is a bad call here, but be aware that the worst case scenario would push rates up faster than the best case scenario would push rates down. Still, I'm not sure the Fed can say much on Wednesday that greatly affects longer term rates like mortgages considering global markets are waiting for next Thursday's Brexit vote.
Loan Originator Perspective
"Bond markets continued their recent advances today, as both MBS and treasuries posted gains. Rate sheets improved slightly, still tracking near multi-year lows. This week's marquee event is the Fed Statement on Wednesday. It'll be interesting to see how Fed members address Brexit and the horrific May NFP report. I'm not locking new loans yet, we've broken prior resistance in treasuries and global uncertainty is impacting US securities markets. Floating borrowers nearing closing may want to lock, but if you've got a little time before closing and at least a modicum of risk tolerance, floating may reap rewards." -Ted Rood, Senior Originator
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
- Markets are primarily concerned with the timing of the Fed's second rate hike (after they first hiked in December 2015)
- After bottoming out fairly close to all-time lows in February, rates have been in an increasingly narrow range just above all-time lows
- Fed hike expectations come and go, creating volatility within that low, narrow range. Things won't get serious until we actually break out of that range.
- After fears increased that the Fed would hike in June, the current flavor of the month is that they'll hold off until at least July. This has helped rates move back toward the lower end of that long term range. These have historically been good locking opportunities in 2016 (because rates tend to rise back toward the higher end of the range shortly after hitting the lower end). That trend won't continue forever, but until it is broken, it provides a useful way to know how advantageous current rates are, relative to other recent offerings.
- 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).