August 15, 2019
Mortgage rates fell today as the underlying market for mortgage-backed-securities (MBS) actually did a better job of keeping pace with broader bond market gains--not something they've been doing very well lately! For some lenders, it was enough to get them back to August 6th's levels, which were the best in nearly 3 years. The average lender can quote a conventional 30yr fixed rate of 3.625% for top tier scenarios. That said, there is much more variability between lenders at the moment. Take a look at the "Temporary Note on Mortgage Rate Inconsistency" below to learn more about why things have been volatile and inconsistent.
There's no reason to expect broader market volatility to suddenly disappear, but as long as Treasury yields don't undergo a massive spike, the mortgage market should be able to catch its breath. Specifically, that would mean MBS continuing to re-solidify their link with Treasuries and mortgage lenders more and more able to translate those strong MBS levels to slightly lower rates. In plainer terms, mortgage rates have some room to move lower, but it won't necessarily be quick. They can avoid moving higher as long as the big bond market rally of the past 2 weeks isn't abruptly reversed.
Loan Originator Perspective
Bonds continued their recent robust rally today, as global economic concerns continued. While my pricing improved, mortgage rates are still lagging behind bonds' gains, one of these days (presuming markets stabilize at some point) that gap will close. I'm not in a big hurry to lock here, unless loans are nearing closing. -Ted Rood, Senior Originator
Today's Most Prevalent Rates
- 30YR FIXED - 3.625 - 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.