June 15, 2015
The Fed doesn't set mortgage rates, but changes in Fed policy are more than capable of sending shockwaves through the markets that affect mortgage rates. In all but rare cases, easy monetary policy is good for rates and constrictive policy is bad. There are notable exceptions, but this economic cycle isn't likely to be one of them. That means the a Fed rate hike (or the expectation for a Fed rate hike) will have (or have had) a negative effect on rates (i.e. pushing them higher).
The notion of expectations is important though. Markets do their best to already be adjusted to anything that is likely to happen. For instance, if market participants know that strange weather in Florida is damaging the orange crop in general, commodities traders might trade the price higher preemptively (because oranges will be more expensive if there are fewer of them). It's the same story with the Fed rate hike, only this time, the weird weather is simply the Fed's clues regarding their rate hike intentions.
All this to say that markets (and thus, "rates") are ready to go either after Wednesday's Fed announcement, and don't seem eager to let other stimuli affect that stance. Lenders are currently quoting conventional 30yr fixed rates of 4.125% on top tier scenarios. Some moved higher or lower today due to market volatility. On average, there was no change from Friday's latest rate sheets. Risks increase exponentially from here--especially on and after Wednesday.
Loan Originator Perspective
"Bond markets opened strongly today on the heels of more Greek default discussion this weekend. Sadly, the gains evaporated by mid morning, in fact before some lenders even issued pricing. With the Fed statement and Chairwoman Yellen's press conference Wednesday, it's unlikely bonds will move dramatically either way tomorrow. I'm still in a defensive mode, and will be until we see markets improve for several days, not just several hours. Floating borrowers need to be sure they are comfortable with the prospect of losing pricing. If they're not, they shouldn't be floating!" -Ted Rood, Senior Originator
"This weeks shapes up to be a potentially risky and volatile week for mortgage rates as the Fed June meeting unfolds as well as further potential Greek drama that may come to a head at any moment. With risks this high I would recommend locking all loans for now. " -Hugh W. Page, Mortgage Banker, SeacoastBank
Today's Best-Execution Rates
- 30YR FIXED - 4.125%-4.25%
- 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 began with a strong move to the lowest rates seen since May 2013. The catalyst was Europe and the introduction of European quantitative easing.
- It's a highly uncertain time for global financial markets. There is much debate over whether or not the global economy is turning a corner, thus justifying a widespread move to higher rates. That's made 2015 significantly more volatile than 2014 for markets. This means lender rate sheets may change appreciably from day to day, and sometimes even several times in the same day.
- Bottom line: European Quantitative Easing helped push global rates to all-time lows in April. Now, the big risk for mortgage rate watchers is that we might have turned a long term corner. That risk is being compounded by speculation about the Federal Reserve raising rates by the end of 2015.
- May and June have amounted to the 2nd major move higher bounce so far this year. Every time this happens, we have to consider the possibility that this will be a big-picture, long-lasting correction. Until such a thing can be ruled out, Locking makes far more sense.
- 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).