November 3, 2015
Mortgage rates rose at a quicker pace today, bringing them up to the highest levels in more than a month. October saw several of the more aggressive lenders get close to offering rates of 3.625% on top tier 30yr fixed scenarios. Those same lenders are all now easily back to 3.875%. Some of them are up to 4.0%. The move up to 3.875% might not seem significant on paper, but the past week has seen rates move up at the fastest pace since early June--itself only one of a handful of similar examples in 2015.
The more troubling consideration is that the recent lows now run the risk of being cemented as a longer-term floor. With expectations for a December rate hike from the Fed, longer term rates (like mortgages) will have a hard time to committing to any significant move lower unless something happens that is clearly seen as staying the Fed's hiking hand.
We'll get some clarity on just how big this risk is tomorrow as 3 of most important members of the Fed give speeches. Markets are afraid they misjudged the Fed's September announcement as being too averse to hiking rates in 2015. That fear is largely a result of last week's Fed announcement. Tomorrow's speeches give the Fed a chance to clarify their seemingly abrupt chance of heart.
Volatility remains a constant threat with several important pieces of economic data coming out between now and Friday morning. While rates rarely move higher in a straight line, the rewards for floating are not worth the risks until we see where the current trend is going.
Loan Originator Perspective
"Rates continued their trudge upward today, and bond yields broke into recently uncharted ground. The 10 year benchmark treasury is up to 2.21%, after being at 2.02 October 28th. It's no longer a question of whether rates are going up, it's where/when will they stop rising. My pipeline is locked, and I'll likely lock all new applications early until momentum changes. The trend is not our friend, and a robust NFP report on Friday could inflict major additional damage to rates." -Ted Rood, Senior Loan Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.875%-4.0%
- 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 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, financial markets are still at a crossroads. This is true for both stocks and rates, with each trying to determine if it will move back to 2015 highs or if the late summer swoon 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).