October 13, 2015
Mortgage rates moved lower today, erasing only some of the weakness that dominated the previous week. In other words, rates were significantly higher by the end of last week and today makes a small dent in bringing them back down. The average lender continues to quote conventional 30yr fixed rates of 3.875% on top tier scenarios, with the more aggressive lenders at 3.75% and a few laggards at 4.0%.
Mortgage rates are most directly affected by the prices of Mortgage-Backed-Securities (MBS), a type of bond that trades throughout the day like most securities. Like US Treasuries, when the prices rise, the yield (or "rate") falls. Investors leaned toward selling MBS (which pushes rates higher) at the end of last week. That's pretty common heading into a 3-day weekend, as is the fact that investors tend to come back in as buyers as the next week begins (pushing rates lower).
In the bigger picture, stock prices and bond yields continue to be fairly well-connected. This is emblematic of the global growth concerns that have, thus far, prevented the Fed from hiking rates. Although the absence of a Fed rate hike doesn't necessarily mean mortgage rates couldn't move higher, both types of rates are taking cues from the same place. In other words, a stagnant global economy will almost always put downward pressure on rates. In this case, it also happens to be slowing down the Fed's rate hike plans.
Loan Originator Perspective
"Rates have managed to regain some of the losses from last week. The benchmark 10 year was unable to break below key level of support at 2.04. Since we are very close to the low end of the range, I think locking here is a prudent decision." -Victor Burek, Churchill Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.875%
- FHA/VA - 3.5%
- 15 YEAR FIXED - 3.125%
- 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).