June 22, 2016
Mortgage rates were higher for a 4th straight day today. That is a bit of a puzzler at first glance because bond markets are showing improvements from yesterday. 10yr yields are 0.02% lower and even the mortgage-backed-securities (MBS) that dictate mortgage rates are in better territory. So why no love for mortgage rates themselves?
Most of this has to do with the timing and intensity of yesterday's market movement. MBS weakened at a gentle pace throughout the day. The losses were sufficient for several lenders to adjust rates higher, but most lenders kept rates unchanged from the morning. Therein lies the problem. While it's true that bond markets are in stronger territory versus yesterday's latest levels, they're still not quite back to the levels in effect yesterday morning when lenders put out mortgage rate sheets. Long story short, most lenders didn't adjust rates to account for yesterday's weakness and are simply getting caught up today.
3.625% is once again the most prevalent conventional 30yr fixed rate for top tier scenarios, although 3.5% is by no means extinct. Tomorrow brings the much-anticipated vote on membership in the European union for the U.K. (aka "Brexit"). As far as we know right now, the biggest risks from an interest rate standpoint won't materialize until Friday morning, but we could see the effects as early as tomorrow afternoon.
Loan Originator Perspective
"The Brexit vote is upon us and rates are going to move...just a matter of which way. Highly risky to float, so if you are happy with your current terms lock up especially if you are within 30 days of funding. Even though we will not know the results until late tomorrow or early Friday, I suspect lenders will conservatively price tomorrow morning. " -Victor Burek, Churchill Mortgage
"I love following the financial markets because there is always something new to consider. Today your lock/float decision is based on Brexit. What’s that? Exactly. The UK will be voting in less than 14 hours to decide if they will maintain or revoke their 40+ year old EU membership. This matters to rates in the U.S. simply because an exit will cause global financial uncertainty which should benefit bonds and push rates lower. Recent polls show the chances are nearly 50/50. I feel there is much to be lost and little to be gained here so locking is recommended. For what it’s worth the betting odds in the UK are 30% exit and 70% remain and I always like to follow the money." -Jason B. Anker, Vice President- Loan Officer at Salem Five
Today's Best-Execution Rates
- 30YR FIXED - 3.625%
- FHA/VA - 3.25%-3.5%
- 15 YEAR FIXED - 2.875%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- Markets had been primarily concerned with the timing of the Fed's second rate hike (after they first hiked in December 2015)
- The possibility that the U.K. would vote to exit the European Union (Brexit) has since taken over as the biggest flashpoint for markets.
- The Fed freely admits it didn't hike in June because of this and because it wants to be sure that jobs numbers aren't taking a bigger turn for the worse. Mortgage rates moved farther into 3-year lows as a result.
- If the UK votes to remain in the EU and if the next jobs report is strong, watch out. Between now and then, volatility will be elevated and improvements in rates will be slow in coming (which is always the case when we're at long-term lows). These have historically been good opportunities to lock, despite the longer term momentum remaining positive.
- 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).