October 5, 2015
Mortgage rates moved substantially higher today in the context of recent day-to-day changes. In the broader context, we're still talking about 30yr fixed rates that have remained in the "high 3's" for over a week now. It's just that today's "high 3" is an eighth of a point higher than Friday's. Lenders that had moved down to quoting conventional 30yr fixed rates of 3.625%, are now back to 3.75% in many cases. less aggressive lenders that were just beginning to quote 3.75% are now back up to 3.875%. More simply put, today's average rate sheet is back in line with last Thursday's. Those were great at the time and they'd be the best in more than 5 months apart from last Friday.
In terms of the bond markets that underlie mortgage rate movement, there is a less-balanced outlook for locking vs floating in the short term. The risk is that Friday's busy day of trading was like an exploratory mission for mortgage rates to find the bottom of their near term range. Longer term, we'd need to see rates move more aggressively higher before concluding that merits of strategic risk-taking had dried up. For what it's worth, I think that IF those merits remain, we're going to learn something about that this week. Some borrowers may have the stomach to wait around and find out, but they'd need to be prepared to lock at a loss on the next quick move higher--even if it's tomorrow.
Loan Originator Perspective
"Friday's dismal jobs report didn't impact bond markets for long. We're now near Thursday's levels, and it's tough to view that as a positive. Once again, rates seem quite happy where they are. Lock/float is a tough call. Pricing OUGHT to be better, given Friday's data, but it's not. I'll advise conservative borrowers to lock sooner, those willing to assume some risk may want to lock on the next rate dip." -Ted Rood, Senior Loan Originator
"This week brings treasury auctions and with that additional risk with floating. We are at overbought levels with both treasury prices and mortgage backed securities. I'm not saying rates can't continue to improve but odds favor rates moving up in the sort run vs dropping. I am in lock mode and recommend you do the same. " -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.
- 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).