October 10, 2018
Mortgage rates are based on mortgage-backed securities (MBS), which are essentially bonds. Conventional wisdom holds that stocks and bonds supplement one another, and that as "money moves in" to one side of the market, it will move out of the other. Conventional wisdom is super duper wrong!
If conventional wisdom held true today, we would have seen a very big move lower in rates. The massive sell-off in stocks means there was a huge amount of cash looking for a new home. While it's true that some of this cash did find its way into the bond market, the amount doesn't even begin to compare. By the end of the day, the bonds most closely tied to mortgage rates had barely reentered positive territory.
Due to the timing of the afternoon market volatility, many mortgage lenders were still showing higher rates compared to yesterday. Others ended up releasing new rate sheets at the end of the day. Unfortunately for those on the east coast, many of these reprices happened .
All of the above having been said, tomorrow could be interesting. If this move in stocks behaves anything like February's example, today may have been a mere warm-up for what's to come. If stocks continue to drop tomorrow, rates would likely see more benefit. As far as today goes, the takeaway is that bonds/rates did everything they could to resist improving. The bigger picture remains challenging.
Loan Originator Perspective
Yesterday's bond market gains vanished quickly today, despite stocks' swoon. I can't emphasize enough that any improvement is likely to be momentary until fundamentals change. Lock early, there's far more risk than reward in floating these days. -Ted Rood, Senior Originator
In this market, float at your own peril. Bonds have been able to hold under 3.25 on the 10 year note, and typically you would want to float the highs and lock the lows. We are currently near the highs, but in this market it is just way to risky to float. -Victor Burek, Churchill Mortgage
Today's Most Prevalent Rates
- 30YR FIXED - 5.0-5.125%
- FHA/VA - 4.5-4.75%
- 15 YEAR FIXED - 4.5%
- 5 YEAR ARMS - 4.25%-4.75% depending on the lender
Ongoing Lock/Float Considerations
- Rates continue coping with several big-picture headwinds, including: the Fed's rate hike outlook (and general policy tightening), the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation (which certainly seems to be the case so far in 2018).
- While rates were able to recover and stay sideways in the summer months, September and October have seen a surge up to the highest levels in more than 7 years.
- Upward pressure can continue as long as economic growth and inflation continue running near long-term highs. Stay defensive (i.e. generally more lock-biased). It will take a big change in economic fundamentals or geopolitical risk for the big picture to change. Such things tend to not happen as quickly as we'd like.
- Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are "effective rates" that take day-to-day changes in upfront costs into consideration.