December 11, 2015
Mortgage rates recovered yesterday's losses in many cases, and moved even lower in many other cases. The mortgage sector was one of the tamer performances of the day when it comes to financial markets. Even if we focus solely on the mortgage-backed-securities (MBS) that most directly affect mortgage rates, we see a lot more movement in the marketplace than we see on lender rate sheets.
This dichotomy between market movement and rate sheets is fairly common when volatility increases or on the approach to a significant economic event. That's especially true of Friday afternoons. With a big increase in volatility on this Friday before next week's big Fed announcement, today meets all the conditions.
Still, rates did drop--just not as much as we might like. The most prevalently-quoted conventional 30yr fixed rate moved back down to 3.875% for some of the more aggressive lenders, though most remain at 4.0%. Among the lenders quoting the same rates as yesterday, upfront costs would be slightly lower (or lender credit slightly higher).
As for the source of all this volatility, it would be hard to chalk it up to something more specific than general market anxiety ahead of next week's Fed Announcement. There are so many chicken vs egg arguments here that it doesn't make sense to get into them (e.g. are oil prices falling for their own reasons or because the Fed rate hike implies a stronger dollar?). The important part is that rate movement can be increasingly volatile heading into the end of the year, for better or worse.
Loan Originator Perspective
"What a unexpected surprise today has been. Rates have rallied mainly due to oil moving lower. With the FOMC announcement next week, lenders will definitely be very conservative with passing along any gains. If your lender has repriced for the better, you should strongly consider locking. If no reprices, then floating to Monday might be worth the risk. As always, 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, 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).