November 5, 2015
Mortgage rates rose at a slightly gentler pace today, but that's little consolation considering that any move higher increasingly pushes into the highest levels in 7 weeks. Behind the recent trend is last week's Fed Announcement and related comments from Fed Chair Yellen this week that stopped just short of promising a rate hike in December. While the Fed Funds Rate doesn't directly control mortgage rates, all rates tend to move higher when Fed rate hike expectations increase.
There were no additional sources of pain for rates today, but the general trend remains negative ahead of tomorrow's Employment Situation Report-the most important piece of economic data each month. Although a weak result might stand some chance to temper Fed rate hike expectations, thus helping rates, a decent-or-better result would certainly have the opposite effect. There's never any way to know which way rates will go in the future, but the risk of further weakness is serious enough to avoid. In other words, locking continues to make more sense than floating until we see where the current trend levels-off.
Loan Originator Perspective
"Rates trickled up further today, as markets prepared for tomorrow's NFP jobs report. Some Fed speakers did little to assuage those fearing a December rate hike, it would take calamitous data tomorrow to delay the Fed. Rates may be getting close to leveling off, but I don''t want to see what a robust jobs report will do to them. I'm locked up, so none of my borrowers have to root for a horrific report tomorrow. Floating? Good luck, hope you have wiggle room in your debt ratios and liquid funds." -Ted Rood, Senior Loan Originator
"It is always risky to float through the Non Farm Payrolls report. Despite weaker rate sheets, I would advise locking ahead of tomorrow morning's release. Only float if you can afford to be wrong." -Victor Burek, Churchill Mortgage
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, 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).