December 7, 2015
Mortgage rates continued lower at a decent pace today, further eroding the big move higher seen last Thursday. While the average lender isn't quite back to where they were before the spike, they're well over halfway. The most prevalently-quoted conventional 30yr fixed rate was getting close to 4.125% as of Thursday afternoon. It fell back to 4.0% on Friday. While you're still most likely to see 4% today, some of the more aggressively-priced lenders are back down to 3.875% on top tier scenarios.
It's a much riskier proposition to buy into a bounce back on the first day. Now with today's additional day of strength, last Thursday's spike increasingly looks like an isolated incident, driven by the European Central Bank's policy announcement (which fell far short of market expectations, driving stock prices down and rates higher). There are two ways to approach this.
On one hand, lenders can see what you can see. They, too, are feeling less defensive with this 2nd day of strength in the bond markets that underlie mortgage rates. As such, they've passed along some more of what they'd been holding back due to last week's volatility. This provides a better opportunity to lock than last Friday's less enthusiastic rate sheet improvements. On the other hand, the second day of strength could be a sign for risk-takers to continue floating in hopes of an even better lock opportunity. The caution I'd offer there is that we've still, by no means, entered back into a downward rate trend. So a decision to float would be predicated on speculation about the longer-term, bigger picture. That's definitely riskier business until we see how markets react to next week's highly likely Fed rate hike.
Loan Originator Perspective
"Bond markets shrugged off last week's losses today, and rates returned to near last Wednesday's levels. As of mid day, 20 lenders issued improved intraday rate sheets, which is always a good thing. At current levels, we're at the best pricing in the past month, with the exception of Nov 30th to Dec 2nd. I can certainly see locking loans closing within 30 days today, and wouldn't disagree if those closing further out wanted to take their cash off the table and lock. Still looks like we will need massive drama to motivate rates significantly higher/lower, the question is where and when will it come from!" -Ted Rood, Senior Originator
"Mortgage rates dropped today as the bond markets continued the rally from last week. Oil breaking under $40.00 a barrel has helped fuel the the bond market rally. The main question now is if oil rebounds will rates go up as well? I think they will or at least that is what may play out until next weeks Fed meeting. For now I feel the risk of float vs lock is 50/50 meaning if you like this weeks rate over what was available last Monday. If you feel like waiting things out into he Fed meeting float. " -Manny Gomes, Norcom 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).