October 5, 2018
Mortgage rates moved back over the 5% threshold, on average, for the first time since early 2011 today following mixed data on the jobs market. Why would "mixed data" be such a problem? It's not, per se, but in this case, it reinforced certain trends that have posed big problems for rates. Namely, the annual pace of wage growth has now held at 2.8% or above for 4 months in a row. Previously, 2.8% was an isolated occurrence and sort of a magical line in the sand. Analysts and policy-makers lamented "frustratingly tepid wage growth" when we were below that line. Now that we're on the other side, the prevailing belief/fear is that wage growth is high enough to put upward pressure on inflation, and that's a big problem for interest rates (inflation is one of rates' mortal enemies).
I don't want to give you the impression that it was exclusively up to today's jobs report to send rates soaring. Rather, today's jobs data simply offered no compelling argument to the existing trend toward higher rates. That trend exists for a variety of reasons. The impact of any given reason is open to some debate, but there is widespread agreement on the fact that exceptionally strong economic data across multiple reports is a key ingredient. Put another way, if several important economic reports had NOT hit their best levels in more than a decade on several occasions over the past 2 months, it's hard to imagine rates being as high as they are today.
Rates will need a very good reason to move lower in any significant way. This could be as simple as a negative shift in the economic data, but it could also result from an unexpected headline (geopolitical surprises, major foreign economic or monetary shocks, etc.). The bottom line is that we're in no position to count on a quick return to last week's levels.
Loan Originator Perspective
Bonds' savage swoon continued today, as a largely uneventful NFP report failed to assuage bond buyers. MBS have lost almost 100 bps in the past 2.5 days, meaning your "no point" quote on Tuesday PM would most likely have a 1% discount point cost now for same rate. We're said for months that rates' downward trend was over, now the only question's how high we'll go. LOCK, don't delay unless you don't mind your rate going up. -Ted Rood, Senior Originator
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.