October 29, 2015
Mortgage rates continued heading higher at a fairly quick pace today, extending the move that began after yesterday's Fed Announcement. That might come as somewhat of a surprise if you've read basically any other article about mortgage rates today. Reason being, Freddie Mac releases its weekly rate report on Thursdays and the rest of the free world promptly publishes articles conveying the data. The only problem is that Freddie's rate report isn't intended to provide an up-to-the-minute glimpse at recent mortgage rate movement. It's not only of no use to consumers actively engaged in the mortgage process, but it can even be downright misleading.
Freddie's data is intended as a long term tracking tool. It relies on lender rate quotes that come in mostly on Monday and Tuesday. Even if rates have begun moving in a different direction by Wednesday, those quotes would still be averaged with the Mon/Tue data. Oh, and if there's a big move on Thursday or Friday, it's never counted. It would be effectively counted only if rates don't change over the weekend.
This methodology results in days like today where Freddie notes "falling rates" because Mon-Wed of this week were generally better than Mon-Wed last week. Unfortunately, most of the movement took place since Wednesday afternoon. In fact, rates are now as high as they've been since September 29th! The lenders that had been quoting 3.75% are now back up to 3.875% and other lenders are back up to 4.0% on conventional 30yr fixed rate quotes for top tier scenarios.
In other news, here's a sneak peak at our new automated newsletter service: marketsnewsletters.com. Today's topic was a deeper dive on this occasional Freddie Mac issue, as well as a recap of the week's housing data (here's an example).
Loan Originator Perspective
"Pretty brutal sell off the last couple days thanks to a somewhat bullish FOMC announcement. I am hopeful the selling has subsided since we had our final auction of the week today. Typically, when MBS sell off quickly, lenders tend to worsen pricing much more than the price drop justifies. Based on that, I would think floating here is the right call. Keep in mind, only float if you can afford to be wrong." -Victor Burek, Churchill Mortgage
"Mortgage rates climbed again today as the market continues to digest the Fed Policy statement. Mortgage bonds were over bought for sometime and a pull back was inevitable. The question now is will it be temporary or long lasting. My personal opinion is this sell will pass soon and we will revisit the rates which were available pre fed meeting in the coming weeks. If you can stomach some pain you can attempt to float but do lock if you are risk adverse." -Manny Gomes, Branch Manager Norcom Mortgage
"Bonds continued their losses today, as rates rose to their highest levels since late September. I've been wondering what would compel bonds out of their prior range, and it appears yesterday's Fed Statement did the trick. It's too early to say whether rates continue sliding upward yet. I'm sure glad all my loans are locked. If you got a rate quote yesterday, don't presume it's still valid, as it likely isn't. If you have high blood pressure, might not want to float, could be detrimental to your health." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 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).