August 13, 2018
Mortgage rates stayed steady at the lowest levels in more than 3 weeks as financial markets are still accounting for additional risks relating to Turkey. Simply put, Turkey is in the midst of a debt/currency/banking crisis and investors are worried about some sort of domino effect among banks that are heavily invested in Turkish banks. All this is worth a bit of "safe-haven" demand for US Treasuries, which offer essentially risk-free returns and a liquid place to park money temporarily.
When investors buy more bonds--all other things being equal--it causes bond prices to rise. When bond prices rise, investors are technically willing to accept lower interest payments, and it's that part of the equation that speaks to lower interest rates on US Treasuries and mortgage rates.
Bottom line: drama in Turkey boosted demand for US bonds, which helped rates.
The catch is that there was fresh drama today and another move to weaker levels for Turkish currency, yet US bond markets didn't really respond (that's why rates held steady). We discussed this risk and the general sense that Turkey is only a temporary benefactor of US rates in last Friday's commentary (here it is, if you missed it).
Loan Originator Perspective
Bond markets were essentially flat today, as were my rate sheets. It remains to be seen whether Turkey's economic woes will cause EU contagion, but for the moment those fears appear to be waning somewhat. I'm locking new applications that are closing in 30 days or less. -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.