July 18, 2019
Economic data and mortgage rate movement go hand in hand. A stronger economy puts upward pressure on rates. A contracting economy helps rates move lower. While this is far from the only source of inspiration, it's indirectly linked to other major sources of inspiration (like Fed policy). Paradoxically, rates managed to move a bit lower today despite an exceptionally strong economic report. What's up with that?
The Philadelphia Federal Reserve district publishes a highly regarded report on the manufacturing outlook each month (dubbed simply "The Philly Fed Survey"). It crushed expectations today. True to expectations, the bond market (which underlies mortgage rate momentum most directly) weakened at first, thus suggesting higher rates. But bonds quickly found their footing. This likely had to do with the fact that last month's Philly Fed survey was almost equally as weak. In other words, today's big beat mostly served to wash out last month's big miss.
But that's not the only factor feeding the paradoxical reaction. Perhaps more importantly, a member of the Federal Reserve (San Francisco Fed President Williams) shared a few bold comments today. Taken together, they convinced markets of the need to consider a 50bp rate cut from the Fed as opposed to a 25bp cut that's already seen as a foregone conclusion. The shift in Fed rate cut expectations primarily benefited shorter-term rates like Treasury bills and 2yr notes, but longer-term rates like mortgages and 10yr Treasuries benefited enough to get into positive territory on the day. Multiple mortgage lenders issued positive reprices. This leaves the average lender in better shape compared to yesterday--something that wasn't necessarily a given based on the morning's trading levels.
Loan Originator Perspective
I continue to not like floating in this market. It seems a 50bps cut to the fed fund rate is baked in but i fear we might only get a .25 cut which in my opinion will cause rates to give back some of the recent gains. Only loans i would float over night would be ones where you can lock tomorrow on a shorter time period. - Victor Burek, Churchill Mortgage
Rates drifted slightly higher today, as retail sales data exceeded expectations. Fed Chairman Powell delivered some dovish remarks, providing some support mid day. There's not much data to inform rates the rest of the week, so I don't look for large moves here. I'm locking most loans closing in August. - Ted Rood, Senior Originator
Today's Most Prevalent Rates
- 30YR FIXED - 3.875%
- FHA/VA - 3.625%
- 15 YEAR FIXED - 3.5-3.625%
- 5 YEAR ARMS - 3.375-3.75% depending on the lender
Ongoing Lock/Float Considerations
- Early 2019 saw a rapid reevaluation of big-picture trends in rates and in markets in general
- The Federal Reserve has been a key player, and while they aren't the ones pulling the global economic strings, their response (and even their EXPECTED response) to the economy has helped rates fall more quickly than they otherwise might.
- Based on the Fed's laundry list of concerns, the bond market (which determines rates) will be watching economic data closely, both at home and abroad, as well as trade-related concerns. 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.