October 1, 2015
Mortgage rates can seemingly do no wrong this week. They fell again today--this time making it firmly into territory not seen since late April. At current levels, many lenders have moved on to quoting conventional 30yr fixed rates of 3.75% on top tier scenarios. 3.875% is nearly ubiquitous, and you'd be more likely to see 3.625% before 4.0%. In other words, we're not merely dabbling in the upper reaches of the "high 3's." Rates are legitimately in the 3% range--for now.
Today's improvements, and indeed some of the improvements earlier this week have NOT been captured by Freddie Mac's weekly Primary Mortgage Market Survey--the industry standard for mortgage rate tracking. While the survey is highly accurate over the long haul, its methodology doesn't allow it to capture all of the movement in any given week. In fact, the only rate sheets that inform the survey response are those that come out on Friday afternoon through Wednesday morning. Moreover, the survey responses tend to arrive more toward the beginning of the week. That means if things are moving fairly quickly over the course of the week, Freddie's survey will be a bit behind the curve.
There's nothing good or bad about the lag in the Freddie Mac data. It's a valuable resource that just happens to be a bit too 'wide-angle' for the average borrower or originator seeking the most up-to-date information on rates. I only bring it up because almost every major news outlet relies on the Freddie report for its official weekly article on mortgage rates. Today, those articles will be saying there hasn't been much of an improvement over last week, and it's important you know that's no longer the case.
This is a timely piece of information as well, because tomorrow brings the important Employment Situation report (aka "jobs report, nonfarm payrolls, or NFP"). This is the biggest piece of economic data that comes out each month and it has the greatest potential to cause movement in the bond markets that dictate mortgage rates. With rates at 5-month lows and even a 50% risk of a big bounce higher, it's even harder to make a case against locking today. Granted, risk-takers could be rewarded if the report is exceptionally weak, but even then, we have to consider that rates can sometimes bounce higher simply because they've gotten tired of moving consistently lower. We're not quite to the point where that's an imminent risk regardless of the data, but certainly, an equivocal jobs report wouldn't make any strong arguments for rates to continue lower.
Loan Originator Perspective
"I am very surprised we are seeing bonds improve once again this morning. With non farm payrolls due out in the morning, I think today is another great opportunity to lock in. Tomorrow's report can have a major impact on rates. With as low as rates are today, the risk is to the upside. I think there is more to lose than to gain by floating." -Victor Burek, Churchill Mortgage
"Rates have been rallying of late in the face of some worldwide volatility and appear to have broken through some resistance. However, with the Jobs Report looming tomorrow, the most important and potentially market moving data piece, I would be taking advantage of the gains and locking them in to protect them. This is especially true if your closing is within 30 days. If your closing is more extended some patience in locking might be beneficial but of course, it might not. Why not lock?" -Hugh W. Page, Mortgage Banker, SeacoastBank
"Mortgage Rates improved slightly, again, today, but we remain at the bottom of the range. My opinion remains the same that locking is the best course of action." -Brent Borcherding, brentborcherding.com
Today's Best-Execution Rates
- 30YR FIXED - 3.75 - 3.875
- FHA/VA - 3.5 - 3.75%
- 15 YEAR FIXED - 3.125 - 3.25%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- 2015 began with a strong move to the lowest rates seen since May 2013. The catalyst was Europe and the introduction of European quantitative easing. Investors bet heavily the move lower in European rates and domestic rates benefited as well. But with those bets finally drying up in April and with the Fed seemingly intent on hiking rates in the US, May and June saw a sharp move back toward higher rates. The implicit fear is that global interest rates set a long term low in April, and have now begun a major move higher.
- July said "not so fast" to that potential "big bounce." Some of the data began to suggest the Fed is still a bit too early in talking about raising rates in 2015--particularly, a lack of wage growth or any promising signs of inflation. But Fed proponents maintain that low inflation is a byproduct of temporary trends in the value of the dollar and the price of oil, and that once these factors level-off, inflation will ultimately return. That side of the argument suggests that inflation could increase too quickly if the Fed hasn't already begun normalizing interest rates.
- With all of the above in mind, locking made far more sense for the entirety of May and June, and we were not shy about saying so. The second half of July saw that conversation shift toward one where multiple outcomes could once again be entertained. In other words, we went from "duck and cover!" to "let's see where this is going..." Even the Fed took a similar stance when it held off raising rates when it had an excellent opportunity to do so in September's meeting.
- 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).