February 14, 2018
Mortgage rates surged higher today, moving easily to new 4-year highs. Today's average conventional 30yr fixed rate is roughly one eighth of a percentage point higher than Wednesday of last week and more than half a point higher than the best rates seen in January. A half point increase would cost roughly $90/mo in terms of monthly payments on a $300k loan. In terms of actual "note rates" being quoted, 4.625% is now replacing 4.5% as the most prevalent quote on top tier scenarios. That said, it's worth noting that there's a fair amount of variability from lender-to-lender and day-to-day at the moment. This is typical for market conditions we're currently enduring.
As expected, today's specific culprit was the Consumer Price Index report (CPI). This is the most important inflation report in the US and arguably the most important piece of economic data over the past 6-8 months. While the mighty jobs report normally holds that title, there's nothing new or surprising about a strong labor market at the moment. A gradual rebound in inflation, on the other hand, would be much bigger news for the economy and the bond market (bonds dictate rates).
Inflation is one of rates' quintessential enemies. Higher inflation means the payments investors receive from bonds will have less buying power in the future. When this morning's data showed that inflation was picking up more quickly than expected, investors rushed to account for that decrease in value. They accomplish this by selling more bonds than they buy, thus pushing the price of those bonds lower. When bond prices move lower, rates move higher.
While today is an unpleasant extension of a broader move higher, nothing has fundamentally changed about that broader trend. Expect it to continue until and unless we have a significant push back in the other direction--and one that lasts for more than a few days. Rest assured, I'll be the first to let you know when such a bounce begins to materialize.
Loan Originator Perspective
Bond markets sold off sharply following today's hotter than expected Consumer Price Index inflation data. Treasury yields seem intent on breaking 3%, and are at the highest levels since early 2014. If you haven't gotten the message yet, it's time to heed the chorus to "lock early!" Floating borrowers "hoping" rates return to early January levels are more likely to be swept over a bond market selloff waterfall than to be rewarded for "hoping". -Ted Rood, Senior Originator
Today's Most Prevalent Rates
- 30YR FIXED - 4.625%
- FHA/VA - 4.375%
- 15 YEAR FIXED - 3.875%
- 5 YEAR ARMS - 3.5-3.75% depending on the lender
Ongoing Lock/Float Considerations
- 2017 had proven to be a relatively good year for mortgage rates despite widespread expectations for a stronger push higher after the presidential election in late 2016.
- While rates remain low in absolute terms, they moved higher in a more threatening way heading into the 4th quarter, relative to the stability and improvement seen earlier in 2017
- The default stance for now is that this trend toward higher rates has the potential to continue. It will take more than a few great days here and there for that outlook to change.
- For weeks, this bullet point had warned about recent stability inviting a bigger dose of volatility. That volatility is now here. As such, locking is generally the better choice until the volatility is clearly dying down.
- 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.