November 9, 2015
Mortgage rates continued pressing into the highest levels since July--themselves the highest levels of the year. In just over a week, the most frequently quoted conventional 30yr fixed rate has moved from 3.75 to a range of 4.0-4.125%. Most lenders are quoting the same contract rates as Friday, with the weakness instead seen in the form of higher upfront costs.
What's with all the drama? In a word: the Fed. There had been some remaining disagreement about when the Fed was most likely to begin raising rates after nearly 7 years of the record low 0-.25% target. Last Friday's jobs report helped get everyone on the same page. Unfortunately, the consensus is that the hike is all the more likely. While mortgage rates are not directly linked to the Fed Funds Rate, most interest rates tend to rise when expectations for a Fed rate hike increase.
When rates rise as much as they have and for as many consecutive days as they have, it becomes increasingly likely that they'll take a break and bounce back somewhat. If you wait to lock, you will feel like a genius if that happens, but you could be looking at significantly higher costs if it doesn't. In this case, the risk of loss is greater than the potential reward for timing the bounce correctly. Lenders aren't likely to give back meaningful amounts of the ground we just lost unless the bounce is sustained and substantial.
Loan Originator Perspective
"Borrowers and loan officers hoping for a fast rebound from Friday's sell off were disappointed today, as we lost further ground and rates rose slightly. Since October 27th, treasury yields have soared from 2.03% to 2.35%. MBS lost roughly 150 bps during the same period, and our "sub 4%" rates are in the rear view mirror at the moment. At some point, we'll level off, and perhaps even undo some of the carnage, but until we do, I'll be advising locking early rather than risking further losses." -Ted Rood, Senior Loan Originator
"Bonds continued the selling spree today with rates edging higher.. They were once again able to close off the lows but did dip below yesterdays level and a floor of support. Bond markets will be closed Wednesday so I do not expect much to occur tomorrow. If we do not violate today's lows tomorrow, Thursday may bring some upside for a change. Those who floated into the jobs report and got burned may want to wait until Thursday before deciding to end the pain or see a sigh of relief. " -Manny Gomes, Branch Manager Norcom Mortgage
"Bond traders continue to sell pressuring rates higher. I feel the rate hike has been well priced in here, but it is risky to float. If you decide to float, you might as well figure to float until Thursday. We do have an auction cycle this week with the most important 10 year auction tomorrow. If you can tolerate the risk AND afford to be wrong, I would float over the next few days. Things could get worse before they get better." -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).