October 20, 2015
Mortgage rates were moderately higher today, ending a 4 day streak near the lowest levels in more than 5 months. To be fair, the streak isn't technically over if we're only looking at the quoted contract rates (or "note rates"). Most lenders continue to quote conventional 30yr fixed rates in the 3.75% to 3.875% range. The rise would instead be seen in the form of higher borrowing costs or lower lender credit.
There was no major motivation for today's mortgage market weakness although the stronger economic data didn't help. When economic reports are stronger than expected (such as this morning's Housing Starts, which came in at 1.206 million vs a median forecast of 1.15 million), it tends to put upward pressure on rates--all things being equal. But again, this morning's data was definitely not the unequivocal source of rate movement.
Sometimes--many times, in fact--the bond markets that underlie mortgage rates can move in a new direction simply because they HAD been moving in another direction to a certain extent for a certain amount of time. In this case, the past 4 sessions saw almost no change in rates or underlying markets. The last noticeable trend had been toward lower rates, so a move higher is a natural step if investors are uncertain about the near term future. As such, it's too soon to say if today's weakness is a sign of things to come, or merely markets' way of consolidating ahead of next week's Fed meeting. Either way, it makes sense to take it seriously from a lock/float perspective--especially considering the losses were minimal.
Loan Originator Perspective
"Bonds drifted in a narrow range today, and loan pricing was largely the same as Friday's. This week's economic calendar doesn't look to provide any meaningful motivation, and I'm back to "the range is the range until it isn't anymore" mode. That means lock near the lows, float near the highs, and we're nearer the low than high now. Happy with current pricing? Lock 'em up, and concentrate your efforts on getting loans done despite TRID's new requirements!" -Ted Rood, Senior Loan Originator
"As mentioned yesterday, we're trudging along, stuck within recent rate ranges. Pricing declined modestly today, enough to impact lender credits, but not actual rates. I'm still locking sooner rather than later, as I don't see any looming events that could shock this market into substantial improvement. Especially with TRID deadlines and lead times, it's just simpler to have as many loan elements as possible defined early in the process!" -Victor Burek, Churchill Mortgage
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).