August 20, 2019
Mortgage rates held steady today, for the most part. If there was a leaning, it was toward slightly lower rates, but not by a wide enough margin to be significant. At first glance, holding steady at the lowest levels in nearly 3 years is great! In fact, it's still great at second glance. But the more information we consider, the more we may wonder why they're not lower. Reason being: 10yr Treasury yields (which often move in the same direction as mortgage rates and by similar amounts) are noticeably lower today! So why aren't mortgages following?
For the explanation, we can simply dust off last Friday's commentary:
The reasons for the discrepancies have to do with the fundamental differences between mortgages and Treasuries as investments. Simply put, a mortgage can be paid off any time whereas Treasuries are guaranteed to stick around. If you invest in a mortgage that's paying a certain rate of return, you're hoping rates don't fall so fast that your borrower refinances.
This plays out time and again in an environment like this, however, and it costs investors so much money so quickly that they immediately become less interested in buying mortgages. As such, rates have to move higher to keep investors interested. Fortunately, rates only need to rise RELATIVE to stable Treasury benchmarks. In other words, mortgage rates are still at long-term lows, but Treasury yields have moved MUCH lower, much faster.
The rest of the week brings additional potential for bond market volatility with several Fed events on tap. These won't necessarily push rates in one direction or the other, but they have the potential to do either, depending upon what's said.
Loan Originator Perspective
Bond markets posted decent gains Tuesday, despite any meaningful economic data. The longer we stay at/near current levels, the greater the motivation for secondary desks to improve pricing. The rest of the week offers limited data, looks like tariff tweets may be traders' biggest motivations. I may float new submissions overnight (or at least until late today) to see if pricing improves this PM. -Ted Rood, Senior Originator
Today's Most Prevalent Rates
- 30YR FIXED - 3.5 - 3.625%
- FHA/VA - 3.25-3.5%
- 15 YEAR FIXED - 3.125 - 3.375%
- 5 YEAR ARMS - 3.375-3.75% 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
- 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.