October 21, 2015
Mortgage rates bounced back to some extent today, after yesterday's bigger move higher. The bond markets that underlie mortgage rates actually made a near-full recovery, but lenders remained more cautious in terms of their pricing strategies. Simply put, that means the trading levels in mortgage-backed-securities (which impact mortgage rates more than anything else) are back where they were on Monday, but the rates lenders are offering to consumers haven't caught up yet.
Keep in mind that we're only talking about minor adjustments over the past few days. In fact, very few prospective borrowers would see a chance in the actual contract interest rate. Rather, the difference in cost would be seen in the form a change in the upfront fees or credits. Lenders continue to quote conventional 30 year fixed rates in a range from 3.75-3.875% predominantly, though a precious few are an eighth of a point higher or lower.
Loan Originator Perspective
"Pricing bounced back somewhat today, and my rate sheets improved about 30 bps over yesterday's. The ECB meets tomorrow to discuss European economics, and dismal rhetoric from them could further boost bonds. For now, we're near the lows on the current rate range, so nothing wrong with locking here. Borrowers with risk tolerance and adventuresome spirits could float, but those who do need to watch markets closely tomorrow." -Ted Rood, Senior Loan Originator
"After testing the upper bound of our recent range, traders are now taking yields back to the lower end of the range. All of yesterday's losses have been regained and MBS are back to where they closed on Monday. To be expected, lenders are being very conservative on passing along the improvements. As of 3pm eastern, only 1 bank has issued a reprice for the better. As long as we can hold around 2.03 on the 10 year going into close, I would float overnight but be prepared to pull the trigger on locking early tomorrow in case traders want to push back toward the upper end of the range." -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).