July 24, 2018
Mortgage rates rose again today, even though underlying bond markets managed to indicate modest improvements. There are two reasons rates ignored those improvements. First of all, they weren't really intact at the beginning of the day when lenders were compiling rate sheets. Even then, most lenders were still in worse shape at the end of the day when bonds gave them the green light to offer lower rates.
The other issue is that lenders had almost all repriced negatively in the middle of the day yesterday, and they did so before the bond market losses had run their course. Markets have to move by a certain amount for the average lender to go to the trouble of changing rates in the middle of the day. If markets don't move enough to prompt mid-day reprices, the direction of the movement is often reflected in the following day's rates. That's why this morning's rate sheets were noticeably worse than yesterday's.
While the market stability is a potential early indication that this rate spike has run its course, it's too soon to bank on it. There are past examples where we've had a quick little market recovery like today only for things to get worse in subsequent days. That may not happen this time around, but that fact that it has happened (and COULD happen again) is enough to suggest caution.
Loan Originator Perspective
Bonds confirmed a breakout yesterday to worse territory for rate shoppers. Until the market settles, my clients and i favor locking in. Even if bonds manage to rally, lenders will be very slow to pass along any gains. So lock and move on. -Victor Burek, Churchill Mortgage
Today's Most Prevalent Rates
- 30YR FIXED - 4.625-4.75
- FHA/VA - 4.25-4.5%
- 15 YEAR FIXED - 4.125%
- 5 YEAR ARMS - 3.75-4.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates moved higher in a serious way due to 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.
- Despite those headwinds, the upward momentum in rates has cooled off heading into the summer months. This could merely be the eye of the storm, or it could end up being the moment where markets began to doubt that prevailing trends would continue.
- It makes sense to remain defensive (i.e. generally more lock-biased) because the headwinds mentioned above won't die down quickly. Temporary corrections can be explained away, but it will take a big change in economic fundamentals or geopolitical risk for the big picture to change. While that doesn't necessarily mean rates have to skyrocket, there's a good chance it means rates will struggle to move much lower than early 2018 lows until more convincing motivation shows up.
- 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.