August 7, 2018
Mortgage rates were roughly unchanged today. That would make this the 4th day in a row without any move higher in rates, and it would leave us at the lowest levels in roughly 2 weeks.
But there's a catch.
The catch has to do with the way that mortgage lenders change their rate sheets based on movement in underlying bond markets. Bond trading levels have a direct bearing on mortgage rates, but lenders can't very well change rates every few seconds when a new trade flashes in bonds. Rather, lenders have certain thresholds of strength or weakness in mind. As soon as bonds cross one of those thresholds, lenders will begin "repricing" for the better or worse.
In other words, if bond yields (which equate to interest rates) rise enough during the course of the day, lenders will recall the day's initial mortgage rate sheet and issue a new one with higher rates. That's a "negative reprice" in the industry jargon.
So what's the catch?
Simply put, bond markets weakened just enough during the course of the day for lenders to consider negative reprices. A few of them actually pulled the trigger but most didn't. That means they'll have to account for that weakness tomorrow morning. The only saving grace would be if we saw strong gains in global bond markets overnight, but there's no way to know whether or not that will happen. Bottom line, rates should be a bit higher than lender rate sheets currently indicate, and as of tomorrow morning, they probably will be--all other things being equal.
Loan Originator Perspective
Bonds posted small losses today, as corporate issuance diluted demand. As has been the case, we're still hovering in the same ranges, the daily changes are virtually insignificant. I don't see much benefit in floating loans within 30 days of closing, have a few that are 60 days out we're waiting to pull the trigger on. -Ted Rood, Senior Originator
At this time in the market my bias is solidly positioned to lock at origination. No evidence of benefit of floating at this time. -Al Hensling
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.