Mortgage rates were initially lower this morning as global bond yields continued to plumb record lows.  There was widespread coverage in financial news of Germany's 10yr bond yield dipping into negative territory.  That's important for a few reasons--not in terms of bringing any new information to light, but simply as an opportunity to stop and reflect on the broader interest rate landscape.

We've been talking about the implications of European markets on US mortgage rates for quite a while.  The level of concern and interest waxes and wanes, but in general, overseas volatility has been an increasingly important consideration for domestic rates markets.  Over the past 2 decades especially, as technology makes the global marketplace a "smaller world," big market movement in Europe ends up pushing US rates higher and lower.  

This global interconnectedness is always happening to some extent.  It happens more when volatility and panic flare up, of course.  Given that the German 10yr bond (or 'Bund,' as it's referred to in financial markets) yields are Europe's equivalent to US 10yr yields, crossing into negative territory is a sign of the volatile, panicked times.  European rates were already very low, but today was a symbolic exclamation point on a narrative that's been helping US rates stay lower than they otherwise would be for several years.

The latest, or perhaps, the most immediate source of panic is the possibility that the United Kingdom leaves the European Union (aka "Brexit").  For most practical purposes, this isn't a big deal in any immediate way, but financial markets are treating like a big deal, both because it could have long term implications for the stability of the EU and because this hasn't happened before.  In other words, they're being overly cautious because they don't know exactly what to expect next Thursday after the U.K. votes on its EU status.

All of this Brexit drama greatly limits the amount of damage the Fed could normally do tomorrow.  That said, the Fed can still absolutely move markets--just not as much as the staggering amount by which they could otherwise move markets at this particular meeting.  Bottom line, the Fed isn't at all likely to hike tomorrow, but between the official announcement, the updated forecasts, and Yellen's press conference, they could conceivably lay out some breadcrumbs that markets interpret as a promise to act in a certain way depending on next week's Brexit vote.

To recap: the Fed Funds Rate doesn't directly dictate mortgage rates, but changes in the Fed's rate hike outlook can have a big indirect effect.  Tomorrow's Fed Announcement is thus still a potential market mover.  Next Thursday is the Brexit vote.  It's a gigantic potential market mover.  Rates are near all-time lows and have been pretty flat.  Upside risks seem limited due to Brexit being next week, but balance that with the fact that markets are probably erring on the side of caution (meaning rates are a bit lower than they would be if the fallout from Brexit was easy to forecast).  And yes, all of this is complex and confusing.

Loan Originator Perspective

"Worldwide bond yields continue to drift ever lower putting downward pressure on mortgage rates.  The risk of a reversal in this trend grows, however, as we get a Fed meeting tomorrow along with a press conference from the Chairwoman where her language will be dissected carefully for meaning and then the vote by the Brits on whether they will exit the European Union.  All this creates more risk in my opinion for the short run.  I think if I were closing in less than 30 days I would be protecting all the gains of late.  Beyond that, it's just a gut check on your risk tolerance."  -Hugh W. Page, Mortgage Banker, SeacoastBank

Today's Best-Execution Rates

  • 30YR FIXED - 3.5-3.625%
  • FHA/VA - 3.25%-3.5%
  • 15 YEAR FIXED - 3.00%
  • 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Markets are primarily concerned with the timing of the Fed's second rate hike (after they first hiked in December 2015)
  • After bottoming out fairly close to all-time lows in February, rates have been in an increasingly narrow range just above all-time lows  

  • Fed hike expectations come and go, creating volatility within that low, narrow range.  Things won't get serious until we actually break out of that range.
  • After fears increased that the Fed would hike in June, the current flavor of the month is that they'll hold off until at least July.  This has helped rates move back toward the lower end of that long term range.  These have historically been good locking opportunities in 2016 (because rates tend to rise back toward the higher end of the range shortly after hitting the lower end).  That trend won't continue forever, but until it is broken, it provides a useful way to know how advantageous current rates are, relative to other recent offerings.
  • As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, conventional 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.'  Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy.  It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).