June 26, 2015
Mortgage rates were already hovering near 2015 highs as of yesterday. Today's spike sent them easily above the previous annual high, set on June 10th. Normally, day to day market movement isn't big enough to cause a change in the actual contract rates being quoted. In other words, it's usually the upfront costs (or rebate) that's changing for any given rate. Today's movement was enough to make a new contract rate more prevalent when it comes to conventional 30yr fixed loans for top tier scenarios. While there still are plenty of quotes going out for lower rates, 4.25% now takes over as the most common.
But wait... Didn't Freddie Mac just yesterday announce it's weekly rate survey showing 4.02%?! Indeed they did, and there's no reason to doubt the long term accuracy of those numbers, but there are a few major caveats. First of all, quoted rates often include points. There's nothing wrong or deceptive about that and Freddie clearly conveys associated points in its report. But it's important to understand that the presence of points can make comparisons between two sources of info much more difficult.
Were we to assume the 0.7 points conveyed in the Freddie survey, today's most prevalent rate would easily be 4.125%, and the average effective rate would be around 4.09%. If Freddie had the luxury of instantly re-conducting its survey this afternoon, the 4.02% reported yesterday would likely be very close to 4.09% today. Herein lies the other caveat: Freddie's data is from survey responses that come in from Monday through Wednesday. That's not a problem when markets are flat, but rates went higher all week. All of Freddie's survey responses from Monday were in a completely different reality compared to today.
The bottom line is that rates are not as low as they were yesterday. Rates are not as low as they were earlier this week. And for the average mortgage applicant with flawless credit, rates are never as low as most reports indicate. The bigger question always is: are they going higher? Definitely maybe! If you've been following along for any length of time, you know we've been in heavy 'defense' mode since early May, and even as early as late April. Nothing about that has changed. There continues to be more risk than reward when it comes to holding off on locking, and next week brings tremendously increased volatility. In fact, much of today's weakness was a defensive preparation on the part of financial markets for that potential volatility.
Loan Originator Perspective
"Rates rose again today, continuing the seemingly unstoppable trend. Who knows where they'll stop? I would strongly advise against any client who wanted to float, it's a near certain recipe for disaster at this point. What more can I say, other than "LOCK ASAP"!" -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 4.25%
- FHA/VA - 3.75-4.0
- 15 YEAR FIXED - 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).