September 26, 2018
Mortgage rates improved in a somewhat noticeable way for the first time in weeks following today's policy announcement from the Fed. Actually, to be fair and accurate, rates didn't improve until Fed Chair Powell answered a question about inflation during his press conference, saying the Fed doesn't see inflation "surprising to the upside." That's a fancy way of saying they don't expect inflation to rise any faster than forecasts suggest.
Inflation is critical to the Fed's decision-making process--especially because we're currently at an important crossroads. For the first time since before the financial crisis, core inflation stands a chance to make a sustained move up and over the 2% barrier. 2% is generally the line in the sand, above which the Fed is more apt to think about tightening monetary policy (i.e. doing things that push interest rates higher). This time around, they began tightening well in advance of 2% inflation because they were highly confident in the inflation outlook (and they were right).
If the Fed doesn't see inflation running hotter than expected, and if today's interest rates do what they can to price-in future expectations, the only risk remaining is that inflation progresses slower than expected. That would be good for rates and that's essentially why rates recaptured some recently-lost territory today.
Loan Originator Perspective
Bond markets caught a small reprieve today, as the FOMC statement and press conference by Chairman Powell played to prior expectations. The "rally" was welcome, but may be fleeting. It's certainly way too early to pronounce the rising rate trend over. I'm floating a couple of applications overnight in hopes of small improvement on tomorrow's pricing (since few lenders repriced better this PM), but I'll need to see several days of gains before my "lock early" sentiment changes. -Ted Rood, Senior Originator
Today's Most Prevalent Rates
- 30YR FIXED - 4.75-4.875%
- FHA/VA - 4.5%
- 15 YEAR FIXED - 4.25%-4.375
- 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.