September 4, 2018
Mortgage rates moved higher today, reversing the improvement seen last Friday. The average lender is now back in line with their highest levels of the past few weeks, although that statement requires some qualification. During that time, mortgage rates have been in such a narrow range that we can only measure day-to-day changes in terms of upfront closing costs/credits. Actual interest rates haven't moved, but "effective rates" are back at recent highs. The net effect is that it would require several hundred additional dollars for every $100k financed in upfront costs to get the same interest rate.
Part of the problem today--depending on your point of view--was exceptionally strong economic data. While it's good news for the economy, such data is generally bad for rates and today was no exception. A key manufacturing report hit its best levels in more than 14 years this morning, putting additional upward pressure on rates. The rest of the week has several other important economic reports. If they sing the same tune, rates could easily continue higher.
Loan Originator Perspective
Bonds continued their late August swoon today, as manufacturing data showed stronger than forecast demand. Friday brings the August jobs' report, we'll likely see conservative pricing (at least) until then. I'm locking all but the most aggressive borrowers, if closing within 45 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.