October 23, 2015
Mortgage rates were slightly higher today, but did a good job of holding their ground considering the volatile market conditions. Rates take their cues from the trading prices of mortgage-backed-securities (MBS), which tend to move in concert with US Treasuries. News of China's surprise rate cut sent Treasury yields much higher overnight and caused MBS to begin the day at a severe disadvantage. In fact, today saw the biggest movement in the underlying bond market of any day this week.
It's a welcome surprise then, to see that lenders only adjusted rates modestly higher by comparison. In fact, the average lender is still offering the best rates of the week apart from yesterday. That puts it among the top 5 days for mortgage rates since April 2015. Not bad for a day that started off with apparent drama! Lenders continue quoting conventional 30yr fixed rates in a range of 3.75 - 3.875% on top-tier scenarios.
Loan Originator Perspective
"From late September through today, it certainly seems as if we are stuck in a small range. Looking at the 10 yr yields, 2.0 - 2.15 seem like the range we've been stuck in. Right now, we are basically in the middle of that range. My advice would be to lock at the lows and float at the high's of these yields on the 10 yr TSY. If closing soon, it's a pretty tough call, but I'd lean to locking in as chasing an eight in fee could easily lead to losing a quarter, especially if you are in a position to lock in for 15 vs. 30 days." -Steve Chizmadia, Mortgage Advisor, Alpine Mortgage Planning
"The other day the EU hints at more QE. Ok, maybe more than a hint. Last night China makes a rate cut. The race to the bottom continues. Rates here in the US took a hit today which poses the question when will the race continue. The Fed meeting poses another mystery next week, although I don’t think the mystery is if they’ll hike or not. My guess is they won’t. So when does the race resume? If you’re closing in the next few weeks the prudent move may be to lock up and move on with the other parts of your transaction. If the race does continue lower, and again, never a guarantee, you may get to refinance in 2016, but if it doesn’t you’ve taken advantage of a great rate today." -Jeff Anderson, Loan Officer, Salem Five Mortgage, LLC
"Rates have a propensity to gyrate in the week leading up an FOMC Announcement (next Wednesday in this case), as no one wants to make big bets and end up being wrong. As a rule, the Fed doesn't comment on monetary policy during this time, so rates take cues wherever they're found. In today's case, China's unexpected rate cut stoked economic optimism and pushed rates higher in the US. I'd suggest locking in shorter term deals due to volatility, but floating longer term as overall health of the global economy remains questionable. After all, China isn't cutting rates because the outlook is rosy." -Matt Hodges, Charlottesville Sales Manager, Presidential Mortgage Group "
"China shocked the markets by cutting its overnight borrowing costs by .25%. This helped to extend the stock market rally but did hurt mortgage bonds. In the long term this move by china combined with the Euro zone opening the doors for further stimulus will import deflation to our country which will help bonds. I cautious in the near term but longer term I see rates dropping." -Manny Gomes, Branch Manager Norcom 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).