January 10, 2017
Mortgage rates were slightly higher today, but remain in much better shape overall when compared to the last month of 2016. In many ways, the new year marked a shifting of gears for rates, or rather, the bond traders whose actions dictate the day-to-day movement.
After the election, with its explosive consequences for financial markets, bond traders were only thinking one thing: duck and cover! In practice, this simply means that it was easy to convince bond traders to sell (which pushes rates higher) and nearly impossible to convince them to buy (which would help rates recover).
In contrast, the first part of 2017 has seen traders poke their heads up and survey the scene. Some buying is going on, but it's tentative for now. This translates to rates having moved back down from the more troubling highs in late December, but without committing to triumphant surge lower.
Regardless of the depth of the recovery, the refreshing thing about it is the reestablishment of a RANGE. Because of the vast differences in loan quotes between lenders and scenarios, the range is easiest to follow in terms of a benchmark rate like 10yr Treasury yields. In 10yr terms, the current range is narrow, running between 2.34% and 2.42%. If you fancy a bit of risk, 2.42% could easily be used as a stop-loss (i.e. lock if 10yr yields rise above 2.42%). If you'd rather remove risk from the equation, it's hard to pick a bad time to lock right now, considering the deepest recoveries in rates would be reserved events that can't possibly come to pass until well into Trump's presidency or for the sort of big, unexpected shocks that can't be foreseen.
Loan Originator Perspective
With 2.42 still holding on the benchmark 10 year note, I will continue to favor floating. Once you are within 15 days of funding, I would lock. But longer term closings I would continue to float but stay in touch with your loan officer as things can change quickly. -Victor Burek, Churchill Mortgage
Bonds were largely unchanged for the bulk of the day, and my rate sheets mirrored yesterday's. The 3-year Treasury auction was well received but had little impact on MBS as usual. Given today's lack of data, a flat market is not surprising. Tomorrow's 10-year treasury auction may inspire some movement, but until then we're treading water. If you're floating, don't expect too much improvement. If you're locked, relax and enjoy the ride. -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 4.125%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25-3.375%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates had been trending higher since hitting all-time lows in early July, and exploded higher following the presidential election
- Some investors are increasingly worried/convinced that the decades-long trend toward lower rates has been permanently reversed, but such a conclusion would require YEARS to truly confirm
- With the incoming administration's policies driving a large portion of upward rate momentum, mortgage rates will be hard-pressed to return to pre-election levels until well after Trump takes office. Rates can move for other reasons, but it would take something big and unexpected for rates to get back to pre-election levels.
- We'd need to see a sustained push back toward lower rates (something that lasts more than 3 days) before anything less than a cautious, lock-biased approach makes sense for all but the most risk-tolerant borrowers. The beginning of 2017 may be bringing such a push, but there's no telling how long it will last.
- 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).