August 10, 2018
Mortgage rates, and indeed most interest rates, are tied to movement in the bond market. In turn, bonds tend to benefit when big, scary stuff is shaking global economic confidence. In today's case, the debt crisis in Turkey did just that. Investors sought safe haven in bonds, and rates moved to the lowest levels since July 20th.
Lest you think that Turkey is a constant arrow in the quiver of potential market movers for rates, understand that things have had to get pretty bad for US markets to unequivocally respond. This has been a festering for several days (even months, depending upon how nervous or clairvoyant you might be by nature). Today was really the first day that where there's no doubt that Turkey is in the drivers' seat for global financial markets.
See how weird that sounded? You'd be correct in assuming it won't last forever and that it hasn't amounted to a profound shift in mortgage rates. After all, it's not like Turkey is Greece from 2010-2012! Ha! Sorry... that was a little European systemic collapse humor--not really that funny I'm afraid. But it does raise a good point: Turkey's market movement potential is limited compared to what we saw from Greece, because Greece shared a ledger with the entire Eurozone (hence the "systemic" verbiage).
That means we shouldn't expect the same levels of inspiration from this overseas crisis--not even close--even though it may well have a bit farther to go.
Loan Originator Perspective
Bond markets rallied significantly today, as Turkey experienced a currency crisis, partially due to US tariffs announced this week. Turkey has the 17th largest global economy (far larger than Greece's), so this situation bears watching. As usual, bonds' gains didn't immediately carry through to rate sheets, so I'm not locking today. It's worth the minimal risk to see where rates are Monday, far greater chance pricing will be better than worse than today's. -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.