June 1, 2018
Mortgage rates move higher today, mostly due to waning political risks in Italy. To be honest, I only really put the jobs data in the headline because the mighty Employment Situation Report is a perennial market mover--especially for rates. In today's case, however, bond market trading levels (the stuff that dictates rates) ended the day right where they were just BEFORE the jobs report came out.
Nonetheless, those trading levels were sufficient for a noticeable move higher in rates. That means rates were rising due to something that happened before the jobs report.
When it comes to the US bond market and this week's volatility, Italian politics have been at center stage. Today was something of a closing act in that regard as the Italian President finally confirmed a new Finance Minister. Failure to do so had previously threated to send the country back to elections, and that was seen as a major risk. Bottom line: avoiding snap elections meant the defusing of those risks, and that wasn't good for rates.
If you're wondering "WHY" such a thing isn't good for rates, the next few sentences are for you. If not, skip to the next paragraph! Bonds (which drive rates) thrive on risk. Scared investors park money in safe-haven bonds like US Treasuries. Mortgage-backed-securities (MBS) also benefit. More demand for these bonds means their prices rise and their yields fall. Falling yield is the same as falling rates--at least by the time lenders convey that reality by updating their published rate sheets.
The move higher means we ended the week right in line with last Friday. Compared to Tuesday, many lenders are nearly an eighth of a percent higher in rate. In terms of upfront costs, this translates to roughly half a point (e.g. $2000 on a $400,000 loan), with most of that hit coming today.
Next week presents a sort of a lull, with the big Fed Announcement coming out the following week. During this time, rates will be "deciding" if they're able to hold under this week's ceiling. This is most easily tracked in terms of 10yr Treasury yields due to the variability between mortgage lenders. We're looking at 10yr yields around 2.94% as an important battleground. If we stay below, that could mean a broader, slower, positive shift is in the works, but please be very aware that such a shift is the underdog on most scorecards in 2018.
Loan Originator Perspective
My clients and i have been favoring locking all week taking advantage of the recent gains. This morning, bonds opened up weaker and rate sheets reflected that. Since bonds have managed to move off the lows of the morning, i think i favor floating over the weekend. If you lender does reprice for the better today, then locking might be the way to go. If not, i would float over weekend and evaluate pricing Monday.- Victor Burek, Churchill Mortgage
Unemployment numbers added pressure on Rates. Currently Locking at Origination. -Al Hensling
Today's Most Prevalent Rates
- 30YR FIXED - 4.625-4.75%
- FHA/VA - 4.375%
- 15 YEAR FIXED - 4.00%
- 5 YEAR ARMS - 3.75-4.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates have been moving higher in a serious way due to headwinds that cannot be quickly defeated. These include the Fed's increasingly restrictive monetary policy outlook, 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.
- While we may see periodic corrections to the broader trend toward higher rates, it's safer to assume that broader trend can and will continue. Until that changes, it makes much more sense to remain heavily-biased toward locking as opposed to floating.
- 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.