August 16, 2019
Things have been weird enough for mortgage rates recently that we were forced to add a "Temporary Note on Mortgage Rate Inconsistency" to our daily coverage recently. It will likely return before too long, but with a few edits for clarity. Edits will also need to account for days like today, which offered a prime example of how the inconsistency can be corrected.
There's a decent chance those first 3 sentences are confusing and/or relatively meaningless, so let's change that!
Mortgage rates aren't the only rates out there. They exist in an ecosystem with more established players like US Treasury yields. They move so much like Treasury yields that even very smart people mistakenly believe Treasuries (specifically, the 10yr) dictate mortgage rates. Recently though, mortgage rates have moved in the opposite direction from Treasuries at times, or simply haven't fallen remotely as much as past precedent would suggest.
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.
Mortgages CAN catch up and we finally saw a great example of that this week. Despite Treasury yields being noticeably higher compared to yesterday afternoon, the average lender was offering lower mortgage rates. This was made possible by the fact that Treasury yields stopped moving relentlessly lower today. They were also much less volatile than yesterday. Both of these things help sooth investor concerns when it comes to buying mortgages.
This is all well and good for today, but there's no telling how prevalent it will be next week. Either way, no one should expect that the paradoxical mortgage rate movement is over, even if we may start to see a winning day here and there.
Loan Originator Perspective
It was a flat Friday to close out a crazy week for bond markets. Treasury yields remained near 1.5%, a level few, if any, anticipated just days ago. Mortgage rates still haven't caught up with bonds' gains, but some stable days will help solve that. I'm in no hurry to lock loans closing over 30 days out. -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.