November 13, 2015
For the third straight day, mortgage rates have avoided moving any higher. Each of the past two days have seen only modest improvements. That leaves us still very close to the 4-month highs seen in the first of of the week. The most prevalent conventional 30yr fixed rate quotes continue in a range of 4.0 to 4.125% for top tier scenarios. There hasn't been any change in contract or "note" rates since hitting the highs. Instead, the improvement has come in the form of slightly lower upfront costs, or higher lender credit depending on the structure of the quote.
Mortgage rates are primarily driven by trading prices of mortgage-backed-securities (MBS), which are part of the broader bond market. Today, bonds reacted to weak economic data as well as falling prices in stocks and commodities. While it's not a hard and fast rule, when there is enough downward movement in things like stocks and oil, or when the economic data is weak enough, bond markets tend to benefit. That means bond prices go higher and rates go lower.
With all that in mind, today's improvement can be looked at from a skeptical standpoint because the motivating factors would normally have resulted in a stronger move lower in rates. That speaks to the general headwinds that rates have faced and will continue to face between now and the December Fed meeting. The headwinds don't prevent rates from moving lower; they simply mean that it will take MORE of the traditionally rate-friendly motivations than it otherwise would to push rates lower.
Loan Originator Perspective
"We were hoping for a third day of positive movement to close the week, and got it today! Looks like our pricing improved about 25 bps, which is certainly welcome. I still can't confirm a looming rally, but am hoping at least we've seen the near term top for rates. I'm not anti-float now for new loans, IF borrower understands there's probably a 50/50 chance of losses versus gains. Those not willing to accept risk could certainly do worse than locking now." -Ted Rood, Senior Loan Originator
"I continue to favor floating here. MBS have picked up some gains today, but lenders haven't fully passed them through to their rate sheets. If you lender has repriced for the better today, you might want to consider locking. But I think it may be worth the risk to float to Monday to see if these gains can be built on and allow lenders time to pass along the improvements." -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).