November 12, 2015
Mortgage rates finally had a winning day, but just barely. Underlying bond markets were actually mixed on the day, but this gave lenders enough stability to move back from their more defensive pricing strategies of the past few days. In other words, during the last 2 weeks where rates have been rising quickly, lenders have been more conservative with respect to setting their rate sheets. When the negative momentum ebbs, as it has over the past few business days, lenders can afford to give back some of their cushion.
"Some" is the operative word here, and perhaps overstates today's victory. From the recent lows to recent highs, the average conventional 30yr fixed quote moved from 3.75 to 4.0%. We're still very much at 4.0% today, but with slightly lower closing costs compared to the past 2 days. 4.0% is fairly aggressive too! There are quite a few lenders still up at 4.125%.
In the bigger picture, today could end up being another piece of evidence that rates can hold their ground here, or it could end up being a normal 'correction' to the larger, negative trend. Such corrections are a fixture in financial markets and it's very rare to see a strong move in either direction that lasts for more than a few weeks without seeing periodic pauses for markets to catch their breath. The past 2 trading days look like just such a pause. Tomorrow will decide if we get back on the unhappy path toward higher rates or if we can carve out a deeper rebound. Until we see a bigger commitment to such a rebound, floating is risky, albeit less risky than it was at the end of October.
Loan Originator Perspective
"Rate sheets perked up a little today, as bond markets treaded water most of the day. The 30 year treasury auction was well received, it appears bond buyers are getting interested at current yields. I'm not ready to call for imminent rate improvements just yet, but at least we've got 2 days of improvements going, Let's hope we close the week on a 3 day winning streak. I'm neutral on locking long term, nothing wrong with borrowers approaching closing pulling the lock trigger here though." -Ted Rood, Senior Loan Originator
"Today marked the final auction of the week, and the last 2 were very well received by investors. This has helped yields improve and lender rate sheets to improve in pricing. There is never anything wrong with locking in some gains, but the gains have been very minimal. If you have floated through the auctions, I would roll the dice and float into tomorrow to see if the gains will be built upon. As always, only float if you can afford to be wrong." -Victor Burek, Churchill Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.0-4.125%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25-3.375%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- 2015 has been largely about rates rising unevenly from a long-term low brought about by the onset of quantitative easing in Europe. In May and June, the Fed increasingly began telegraphing a 2015 rate hike. At that point, the "rising rate environment" seemed like a sure thing, but the Fed's plans hit several snags. Economic data began deteriorating at home and abroad, causing markets to rethink the higher rate rhetoric. Mortgage rates hit 6 month lows at the end of October, just as the Fed surprisingly changed it's policy statement to specifically suggest December as a rate hike possibility (something they haven't done since 1999).
- In the bigger picture, rates had been at a crossroads, trying to determine if they would move back to 2015 highs or if the late summer swoon was merely the first wave of a longer campaign.
- While there is still plenty of room to be concerned about increasingly weak global economic growth, that's not a solid enough reason to float in this environment. With the Fed almost certainly on track for a December rate hike, there is much more risk that rates move quickly higher vs quickly lower. The big picture global malaise can serve as the basis for long term hope, but in the short term, assume upward pressure on rates when formulating your strategy.
- 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).