July 2, 2015
Mortgage rates made an anti-climactic move lower today after the big jobs report proved slightly disappointing to markets. Stocks and bond yields both fell after the Bureau of Labor Statistics said only 223k jobs were created in June compared to a negatively revised 254k in May. Perhaps even more of an issue was the drop to 0.0 percent wage growth versus forecasts of 0.2 percent. The Fed has recently expressed interest in wage growth as one of the signs that economy is ready for a rate hike. After the data came out, options trading suggested the median Fed rate hike time frame moved into 2016. It had been September 2015 until today.
Of course the Fed's eventual rate hike doesn't have a direct bearing on 30yr fixed mortgage rates, but it has all the bearing in the world on the short term money that financial markets use to facilitate the trading of long term money. In all but a very few historical circumstances, when short term rates move up, so do mortgage rates. Refreshingly though, much of 2015's move higher in rates is, in fact, a preemptive move that attempts to account for the rate hike. So when the time comes, it's not as if mortgage rates will instantly rise a quarter of a point.
That preemptive move is ongoing, and it's joined by the other big-picture theme of 2015. That's the gradual unwinding of the great European bond market rally of 2014 (and early 2015) ahead of their quantitative easing program. (As a reminder, 'bond market rally' = lower rates.) Now that inflation has begun picking up in Europe, the ultra low rate environment caused investors to panic this spring. Rates have moved quickly higher since then, leaving us to wonder if the panic has subsided or if it's merely taking a break. Until and unless we see much more strength than we saw today, it continues to make most sense to assume the move higher in rates will continue and act accordingly in terms of locking and floating.
Loan Originator Perspective
"Well, a "Goldilocks" jobs report today (not too hot, not too cold) has pushed back expectations for an imminent Fed rate hike, and bonds improved. My pricing is better than yesterday's, but Tuesday's was still the best of the week. We are firmly entrenched in the current range, just bouncing up/down within it. Until that range breaks, I'll be locking in the lows. Happy Independence Day, all!" -Ted Rood, Senior Originator
"Rates improved a bit following a NFP report which was a bit worse than expected. The next big market mover will be Greece and the outcome of the referendum. This vote is being perceived as saying yes or no to the Euro. If the vote comes back as a NO we could see rates come down a bit. If it comes back as a YES the market should not really be impacted to much for the market appears to have priced in a YES response. On a side note I just spent a few weeks in Greece and talked to a lot of citizens there and they all shared more or less the same message. They are not happy with the EURO and can care less about the EURO union. By biased opinion leads to me believe the Greek referendum will come back with a NO and for that reason I am recommending floating over the Holiday weekend. Please to take into consideration floating will come with risk. " -Manny Gomes, Branch Manager Norcom Mortgage
"I continue to favor locking at loan application. A mixed employment report has helped bonds recover all of yesterday's losses. Much of today's gains have come after initial rate sheets so look to lock later in the afternoon." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.125%-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).