August 13, 2019
Mortgage rates were still unchanged for many lenders as of this morning. There were even a few offering slightly lower rates compared to yesterday morning's offerings. That was a welcome development considering broader bond markets (which generally dictate rates) were pointing toward higher rates at the time. This can be explained by the inconsistent behavior of the mortgage market with respect to US Treasuries (and/or "the broader bond market") discussed in greater detail in the temporary "note on mortgage rate inconsistency" below. Today's iteration had more to do with the volatility component as bonds were somewhat rocked by headlines regarding the delayed implementation of several recently announced tariffs.
If the announcement of tariffs was good news for rates 3 weeks ago, the delay is bad news, and was taken as such. True to the current script, Treasuries took the news worse than mortgage-backed securities, but both ended up losing enough ground today to constitute a volatile reversal of yesterday's move. By the end of the day many mortgage lenders were forced to reprice for the worse, leaving rates at their highest levels in nearly 2 weeks.
Loan Originator Perspective
Bond markets traded lower all day Tuesday, as yesterday's gains disappeared. My pricing was similar to Monday's, mortgage rates now appear somewhat uncoupled from bond markets. I'm locking loans closing within 30 days, it doesn't seem like there's much room for imminent pricing improvement from here. -Ted Rood, Senior Originator
Today's Most Prevalent Rates
- 30YR FIXED - 3.75%
- FHA/VA - 3.375-3.5%
- 15 YEAR FIXED - 3.375%
- 5 YEAR ARMS - 3.375-3.75% depending on the lender
Temporary Note on Mortgage Rate Inconsistency:
Mortgages have been doing a lousy job of keeping pace with broader bond markets (generally represented by US Treasuries and especially the 10yr yield). This is happening for a variety of reasons and we'll leave this temporary note intact until the phenomenon dies down.
Mortgages and the bonds that underlie them (MBS) are subject to one major uncertainty that doesn't affect US Treasuries: the risk that a borrower will refinance. Investors pay extra money for mortgages upfront in exchange for interest over time. They have well-researched models that suggest average refinance risk. When rates fall more quickly than expected, people refinance faster and investors lose out on the returns they were counting on to break even. The result is that investors pay much less for any given mortgage relative to what they would pay if Treasury yields were holding steady. When investors pay less, borrowers pay more for any given interest rate, or they're simply forced to take a higher interest rate.
There's one more layer of frustration that exists between mortgage lenders and the bond market. Simply put, when volatility is high, it costs lenders much more than normal to ensure the availability of locked rates, not to mention the ability to remain profitable in the process. The result is that lender pricing will appear very conservative compared to times when MBS prices are holding in a more stable pattern.
This double whammy for mortgage borrowers can keep rates flat or even HIGHER on days where 10yr Treasury yields are MUCH lower. It will only be fixed by TIME.
If you're looking for the simplest possible analogy, here you go: mortgage rates find drops in the 10yr yield to be intoxicating and pleasant. But this particular drop is tantamount to alcohol poisoning. Last thing they want right now is another drink.
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
- 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.