October 15, 2015
Mortgage rates managed to hold their ground for the most part today. This is good to see, considering that the broader bond market had a tougher time. (Mortgage rates are most directly affected by the trading prices of mortgage-backed-securities (MBS), which tend to move in the same direction as US Treasuries.) Specifically, 10yr Treasury yields rose by more than 0.04% today, but the average mortgage rate was only 0.01% higher. Because rates are generally offered in .125% increments, this means today's quoted rate at any given lender should be the same as yesterday's, but with minimal adjustments to the upfront costs or credits. Conventional 30yr fixed rates for top tier scenarios are currently in a range from 3.75% to 3.875%.
Rates were resilient in more than one way today. Not only did they outperform other parts of the bond market, but they outperformed themselves! The most widely distributed mortgage rate index was released this morning, showing a noticeable increase in rates versus last week. The good news is that today's rates are lower than 4 out of 5 days last week. The discrepancy is due to the methodology of Freddie Mac's weekly rate survey in that it only captures quotes from the beginning of any given week. Last Monday was the 2nd best day for rates in 5 months, and rates rose significantly during the week. That made for much higher quotes in this week's Freddie survey, but rates began falling just after most of Freddie's data was gathered. In other words, this week's Freddie survey compared this week's worst rates to last week's 1-day anomaly of super low rates. In reality, today is just a bit better than most of last week.
Loan Originator Perspective
"Despite a little selling today in bonds, I am seeing rate sheets slightly better than yesterday. Anytime we gain pricing, consumers that have been floating should look into locking in the gains. I am not too worried that bonds will continue to sell off as the benchmark 10 yr is still holding under 2.04. Unless that breaks, I would continue to float until you are within 15 days of funding, then lock." -Victor Burek, Churchill Mortgage
"Bonds took a breather today, as the CPI index beat expectations, offsetting yesterday's weak PPI. Higher readings on inflation related data, such as CPI, PPI or wages, could assuage Fed concerns over low inflation, and inflation is bonds' mortal enemy. At any rate, we retain the bulk of yesterday's gains, and today's pricing reflected that. I'd love to see 10 year Treasuries stay below 2%, but we've already lost that battle for now. I'm locking today, as it appears we've bounced off the lows for rates, and there's room for them to rise. Happy with your pricing? LOCK and relax!" -Ted Rood, Senior Loan Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.75-3.875%
- 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.
- In the bigger picture, financial markets are now at a crossroads. This is true for both stocks and bonds, with each trying to determine if it will move back into the the ranges seen in June and July or if the recent move lower in yields and stock prices was merely the first wave of a longer campaign. If we take the Fed at their word, and if we forego any concerns about increasingly weak global economic growth, there is certainly more risk that rates move quickly higher vs quickly lower. Hoping for lower rates is a long-term game meant only for economic pessimists who know the fact that the world is doomed will come to light fairly shortly. The latter must also be willing to pay higher rates if they end up being wrong (or otherwise unwilling to wait long enough to be right). All that having been said, those pessimists have increasingly been proven right as 2015 has progressed.
- 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).