November 7, 2019
Mortgage rates surged higher at a rapid pace for the second time this week. Taken together, the jump is the biggest of its kind since the big rate spike in September, and one of only a handful of weeks in the past 3 years where lenders are quoting rates that are 0.25% higher than the previous week.
Progress on the US/China trade deal is the key culprit behind the volatility, but not the only factor. In general, the bond market (which dictates rates) has been doing so well for so long that risks of a bounce have been increasing simply due to doubts as to how long the good times could continue to roll. In market jargon, these motivations are referred to as "technical."
Technical motivation can play out differently depending on the market in question. Unlike the stock market, which has proven itself capable of rallying for more than 2 years without major incident (most recently from April 2016 until the end of 2018), the bond market rarely strings together more than a year of strong momentum without some sort of reset--especially when the year in question has covered as much ground as this one.
It's increasingly looking like that reset process began a few weeks ago. From there, it's a bit of a chicken and egg problem. Rates are certainly moving higher in response to the trade news, but have they been more willing to do so because of those technical motivations? Either way, we have eggs and we have chickens, or perhaps a more sinister sort of bird bent on our destruction. You get the idea.
A lot of damage has already been done, but there are a few caveats. Rates are still historically low, with many lenders at or under the 4% barrier. And, well... a lot of damage has already been done! That's one of the caveats! Past examples of these sorts of corrections peg the time frame between 3 and 8 months. Given that this correction technically began when rates bounced in early September, we're already 2 months in. The final caveat is that there's at least one historical example that suggests rates could move sideways in a volatile range in the coming months as opposed to spiral relentlessly higher. And while I wouldn't rely on that singular example as a reason to be complacent, a little hope is better than no hope at all.
On a final note, if you're reading this and wondering why other news articles mentioned LOWER rates this week, that's because those other articles are wrong. Look closely and you'll see they are citing Freddie Mac's weekly rate survey which only measures rate changes at the beginning of any given week versus the previous week. The more things move on Tuesday-Friday, the farther from reality the survey can be by the time it's released on Thursday (note: Freddie technically accepts survey responses through Wednesday, but our experience confirms a heavy bias toward Monday's rates).
Loan Originator Perspective
Trade deal news is a wild card. You can look at technical charts and hope we retrace to levels that were ceilings in the past but when one tweet about one element of a Trade Deal can move markets, you’d have to be very risk tolerant to do so. The hope here is that we can get back under 1.9 and then have it act as a ceiling. The real hope for lower rates is the implosion of the Trade Deal. I don’t have a better chance of predicting those two as I do of telling you how much snow we’ll get in February. My hope is less than 1.9 inches. -Jason Anker - Sr. Loan Officer
Bonds markets sold off swiftly and severely this morning, amid news of US/China tariff talks. Although the losses eased by afternoon, today's still be one of the worst days of the year for bonds, which is precisely why I've been locking early. I don't know if/when we'll regain today's decline, but it won't be easy. All my deals closing within 45 days are locked. -Ted Rood, Senior Originator
Today's Most Prevalent Rates For Top Tier Scenarios
- 30YR FIXED -3.75-3.875%
- FHA/VA - 3.375-3.5%
- 15 YEAR FIXED - 3.375-3.5%
- 5 YEAR ARMS - 3.25-3.75% depending on the lender
Ongoing Lock/Float Considerations
- 2019 has been the best year for mortgage rates since 2011. Big, long-lasting improvements such as this one are increasingly susceptible to bounces/corrections
- Fed policy and the US/China trade war have been key players. Major updates on either front could cause a volatile reaction in rates
- The Fed and the bond market (which dictates rates) will be watching economic data closely, both at home and abroad, as well as trade war updates. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.
- 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.