October 26, 2015
Mortgage rates moved slightly higher today on average despite strength in underlying bond markets. Normally, when bond markets improve, rates drop. Recently, however, lenders haven't responded to market movements at the regular pace. This can happen during times of increased volatility--especially if the volatility is generally taking bond markets back and forth within a range. In these cases, lenders assume that the range will continue to hold and thus avoid chasing every little move higher and lower. Such was the case on Friday when lenders kept rates lower than the bond market weakness suggested. But today didn't bring nearly enough strength to offset Friday's damage. Thus we're left with the slightly stronger bond markets coinciding with slightly higher rates.
All that having been said, not every lender moved higher, and the changes were modest among those who did. The average lender continues quoting conventional 30yr fixed rates of 3.75% to 3.875% on top tier scenarios. The change in effective rates would be seen in the form of higher closing costs or lower lender credit.
Loan Originator Perspective
"It was a sedate Monday in rate markets today, as both MBS and treasuries traded in narrow ranges. Wednesday's Fed Situation Report will hold traders' attention, as always, but more for their economic outlook than an actual rate hike announcement, which is highly improbable. The more times we hear "the Fed is going to raise rates!" without that happening, the less markets seem to pay attention to the predictions. I'm neutral on locking, can see us gaining some ground short term, but doubt it would be outside our current range. If you're happy with your pricing, grab it and go, particularly if within 30 days of closing." -Ted Rood, Senior Loan Originator
"Mortgage bonds are buying time heading into this weeks fed meeting. We have been trading sideways and probably will continue to do so until the Fed meeting. I am advising floating into the meeting for you may be able to catch a rally or avoid a sell off if you act quickly." -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).