December 1, 2015
Mortgage rates had their best day in over a month today. It was also the first day with any legitimate movement in nearly three weeks. Over that time, rates have been sideways to slightly lower, with the average lender continuing to quote conventional 30yr fixed rates of 4% on top tier scenarios. Today's improvement brings several lenders back into the high 3's, though the majority aren't quite there yet. Still, in the cases where today's quoted rate is the same as yesterday's, the upfront costs should be appreciably lower (or lender credit should be higher).
We can chalk today's movement up to several factors. Most overtly, a key manufacturing report was quite a bit weaker than expected. Weaker economic data tends to benefit the bond markets that dictate mortgage rate movement, but that alone wasn't enough to explain today's drop. Unfortunately, the other pieces to this puzzle are more esoteric. They involve things like the bond market trading dynamics surrounding the beginning of a new month.
To oversimplify, there can often be some pent up pressure to buy or sell bonds on the first day of the month. Today that pressure happened to go in our favor. The rest of the week will likely be more dependent on the economic data and the plethora of speeches from Fed officials.
Loan Originator Perspective
"What a surprise today has been. I was expecting bonds to pull back some due to the new month and the upcoming jobs report on Friday. However, the opposite has happened and bonds are having a terrific day. I am not convinced that this is the start of a long rally, so I think it would be wise to lock if you are within 30 days of funding. These gains can disappear very quickly. If you plan to lock today, it would be wise to wait as late as possible to allow your lender the time to pass along the improvements." -Victor Burek, Churchill Mortgage
"If you locked yesterday and saw rates improve today don't beat yourself up. Things could have easily gone the other way if the ISM data came in above expectations. Moving forward we may see the lift in bond prices continue making floating a strong consideration. " -Manny Gomes, Branch Manager Norcom Mortgage
"Rates rallied today, somewhat surprisingly, as bonds posted their largest gains in the past two months. Whether the motivation was tepid economic data or traders consolidating their positions, we'll gladly take the improvements, especially if they don't evaporate as fast as they appeared. Days like today make for a tough lock/float call. I'll lock some floating deals, especially those within 30 days of closing." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.875 - 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).