December 14, 2015
Mortgage rates moved quickly higher today, more than erasing Friday's strong performance. If fact, most lenders are at their highest levels in more than a week. All that having been said, we're not talking about massive movements in the grand scheme of things The most prevalently-quoted conventional 30yr fixed rate remains at 4.0% for top tier scenarios. A few lenders had been quoting 3.875% late last week, but now there are fewer. Conversely, there were several lenders quoting 4.125% last week and now there are more.
As we discussed after Friday's drop in rates, it doesn't make too much sense to pin down the source of this volatility on any one factor. Financial media gets a hold of a plausible story and it tends to get more credit than it deserves for doing something it probably isn't doing all by itself. The fact is that Wednesday's Fed meeting is, was, and will be a focal point for financial markets. Other headlines are most likely being made possible by the uniquely volatile environment surrounding this once-in-a-lifetime rate hike.
As always, keep in mind that the Fed rate hike pertains to the Fed Funds Rate, which doesn't directly affect mortgage rates. Additionally, financial markets have already done their best to be in a position for future expectations. A vast majority of the market sees the Fed hiking, so rates have already adjusted accordingly. The subtleties in how the Fed delivers the news will do more to inform the market's reaction. The safest bet continues to be in favor of volatility. In other words, things can go either way, in a big way.
Loan Originator Perspective
"The time has finally come. The FOMC meets this week and on Wednesday, they will announce the first rate hike in about a decade. The first rate hike is baked in at current levels, what isn't our future rate hikes. If the Fed indicates that future hikes will be slow and well spaced out, we could see rates rally on Wednesday. However, if the markets reads the statement and it paints a picture of faster less spread hikes, rates will move higher. Regardless, it is very risky to float this week. If you are happy with current pricing, locking in today makes the most sense. At this point, there is much more to lose than to gain by floating." -Victor Burek, Churchill Mortgage
"Our Friday rally may have been unexpected, but today's correction was predictable, given the FMOC meeting tomorrow, followed by their policy statement on Wednesday. Pricing essentially returned to Thursday's levels, which were near the "worst" in the last month. "Worst" in this case isn't horrific, around 50 bps worse than recent "best" levels. It's unlikely bond markets will post large rallies before Wednesday's Fed Statement, and what happens after that's released is a wild card. While it's a forgone conclusion they will raise the overnight rate, the content and tone of their statement will be the influence on long term rates. Borrowers floating better have high risk tolerance and realistic expectations of how much pricing could worsen. If Fed Statement is bullish on economic conditions, rates could rise quickly. I'm locking new loans for most loans." -Ted Rood, Senior Originator
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).