September 18, 2018
Mortgage rates edged up to 4-year highs with yesterday's bond market losses and things went from bad to worse today. Bond markets (which underlie and directly affect rates) are under extreme pressure today and have generally had a very bad September. Weakness in bonds equates to higher rates.
So why are bonds weak?
In part, this is weakness that was expected way back at the beginning of the year as the tax bill came to fruition and as economic data continued to suggest ongoing expansion. Given that the inflation/growth outlook was a whole lot worse in 2013 and early 2014 when 10yr Treasury yields briefly crested 3.0%, it stood to reason that those same yields would almost certainly need to move well over 3.0% this time around (inflation/growth are key factors in Treasury yields and rates in general).
After hitting 3.13% in May, 2018, 10yr yields calmed down and managed to hold under 3% ever since, with a few moments of modest exceptions. Today presents the most serious attack on the 3% ceiling since then, and it begs the question of whether we'll see those previous highs tested.
Things are slightly worse for mortgage rates, which only generally follow the 10yr Treasury yield. Back in May, mortgage rates were a little better than they are now, relative to 10yr Treasuries. As such, today's rates are the highest in at least 5 years for some lenders (there were a few days in the middle of September 2013 that were worse) and the highest in 7 years for any other lenders. In both cases, we're talking about average conventional 30yr fixed quotes of 4.75% to 4.875% for top tier scenarios.
Many lenders issued negative reprices today as bonds deteriorated. A precious few continued to offer the same rates all day. In those cases, expect those lenders to be offering noticeably higher rates tomorrow morning, barring some miraculous overnight recovery in bond markets. In general, that's not the sort of thing that it makes much sense to bet on at times like this. The game plan is to duck and cover. When the coast is clearer, we'll know it and, rest assured, we'll be talking all about it.
Loan Originator Perspective
Bonds' seemingly relentless trek to higher rates continued today, and 10 year Treasury yields breeched the significant 3.0% mark. I don't know how high rates are headed, but they sure don't look to be going down soon. I'm locking new loans closing within 60 days at application for all but exceptionally risk tolerant clients. -Ted Rood, Senior Originator
Today's Most Prevalent Rates
- 30YR FIXED - 4.75
- FHA/VA - 4.5%
- 15 YEAR FIXED - 4.25%
- 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.
- Rates cooled off heading in the summer months, but that proved to be the eye of an ongoing storm. As long as economic data remains strong, rates can continue to move higher in general, even though there may be brief periods of correction.
- It makes sense to remain defensive (i.e. generally more lock-biased) because the headwinds mentioned above won't die down quickly. It will take a big change in economic fundamentals or geopolitical risk for the big picture to change.
- 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.