August 16, 2018
Be careful what you read--or perhaps, who you trust--about mortgage rates today. There's a lot of misinformation out there. Don't be mad. No one is out to get you. No one is out to intentionally deceive you (at least not when it comes to today's mortgage rate news. Rather, the misinformation is a byproduct of a few unfortunate realities that we contend with on a regular basis.
The first reality is that Freddie Mac's weekly rate survey is widely relied upon by media outlets. There's nothing wrong with Freddie's data as long as you understand what you're getting. It is a stale, loosely accurate report of what a few lenders are offering on a few days of any given week. Over time (preferably, a LONG time), it does a nearly perfect job of capturing the ups and down in mortgage rates.
The problem is that media outlets use Freddie's data as a primary source for stories about how mortgage rates are moving in relative real-time. For example, many headlines tout "much lower rates" today, but the data in question is based largely on a comparison between Mon/Tue of this week versus the same 2 days last week.
In actuality, rates had already fallen to their present levels by last Friday. Unfortunately, Freddie's survey never even measures Fridays.
The other unfortunate reality is that reporters will often simply grab the nearest major headline and imply a connection that doesn't exist. For example, today's headlines insinuate that it was this morning's weaker home construction data driving the move lower in rates.
To understand just how preposterous this is, we'd first need to consider that home construction data rarely has any sort of noticeable impact on day-to-day interest rate levels these days. It's only ever been a big market mover back during the housing crisis. From there, we'd also want to consider that the move to this week's low rates had clearly already happened WELL before today's data ever came out. If anything, global economic jitters (from last week) involving Turkey and China deserve credit for the modest adjustment in rates.
And that brings us to the final reality: rates just haven't been moving much. That means anyone who comments on them needs to remind the audience that we're RARELY talking about actual changes in quoted payment/note rates. Rather, the more granular upfront costs/credits change slightly from day to day, resulting in a change to EFFECTIVE mortgage rates. In other words, the average top tier borrower has seen 4.625% on a 30yr fixed for a long time now while daily fluctuations in upfront costs make "effective mortgage rates" higher or lower during that time.
C'est la vie. The bottom line is that rates are roughly unchanged today, modestly lower than last week (in "effective" terms) unless you count Friday as part of last week.
Loan Originator Perspective
Bonds regressed slightly today, but not enough to influence my pricing. Looks like we've seen as much benefit from Turkey's currency crisis as we're going to, barring further contagion. I'm locking new applications closing within 30 days. -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.