August 1, 2018
Mortgage rates were slightly higher today, but not because of the Fed. Today brought a Fed policy announcement which can be quite a big deal for rates, depending on the particulars. This time around, those particulars were almost exactly the same as the previous Fed statement. Investors will sometimes read some significance into such an absence of change, but that wasn't a factor today.
Of far greater importance to rates was an update from the Treasury department that spelled out near-term borrowing plans. Government spending is funded in large part by the issuance of Treasury debt. The more debt issued, the greater the supply and Econ 101 tells us what happens when supply rises: prices fall!
While falling prices might sound like a good thing, in the case of Treasury debt, it means investors are paying less to buy bonds. As bond prices decrease, yields--or interest rates--rise. While Treasuries don't directly dictate mortgage rates, they are highly correlated. In general, when 10yr Treasury yields are at long-term highs, mortgage rates will be able to make the same claim, or close to it. With that in mind, both 10yr yields and mortgage rates hit their highest levels in more than 2 months today. That said, the move was more apparent in Treasuries. Mortgage rates just moved back up to Monday's levels, for the most part (which were 2-month highs at the time).
Loan Originator Perspective
Bond markets shrugged off today's Fed Statement and Chairman Powell press conference, but had retreated in morning action. Treasury yields are at their highest levels since May. There's seemingly no motivation for rates to drop, so, best case scenario they stay where they are. I'm still locking early, sure glad I've been doing so since start of the year! -Ted Rood, Senior Originator
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.