November 17, 2015
Mortgage rates had an interesting day today, with most lenders beginning at slightly higher levels, but improving by the end of the day. The average lender is quoting the exact same rates seen yesterday afternoon. As always this will vary by lender, but even the underlying bond market abruptly returned to yesterday's closing levels after heading toward higher rates this morning.
The reasons are complex and boring. If you're into that sort of thing, feel free to continue. Bonds are financial instruments where a buyer pays money today in exchange for the right to be paid back over time with interest. There are all kinds of bonds. Even the mortgage-backed-securities that dictate rates are kinds of bonds. There are other financial instruments too, but bonds are there own sort of thing.
Think of bonds like protein. It's different than carbs or fats (maybe those are currencies and stocks?). But even within the realm of "protein," there is a ton of variety. Same story with the bond market. You've probably heard about US Treasuries, which serve as the risk-free benchmark for the entire US bond market. Another major sector is the corporate bond market, which consists of companies issuing debt to finance "stuff." In today's case, markets were expecting to be able to buy a big corporate bond which was unexpectedly pulled.
This left investors with cash in hand, ready to buy bonds. Just like a shopper who heads out looking for chicken might substitute another protein if there is no chicken at the store, investors spent that money on other bonds. More demand for bonds and less supply means higher prices and lower rates. It's that simple, although it takes mortgage lenders some time to react to the changes in bond market trading levels.
Loan Originator Perspective
"Bonds reversed their earlier losses today when a pending corporate bond sale was pulled. We often see MBS decline due to corporate bond supply, nice to finally catch the upside of that relationship. This DOES NOT mean we can assume we've seen rates' upper limit long term, and won't influence my lock/float philosophy. Until we can sustain a rally for more than a couple of hours, I'll be advising most clients to lock, if within 30 days of closing." -Ted Rood, Senior Loan Originator
Today's Best-Execution Rates
- 30YR FIXED - 4.0%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25%
- 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).