July 28, 2015
Mortgage rates bucked the recent trend of steady, modest improvements to end just slightly higher today. That said, the move was just as small as most recent examples, and barely returns most lenders to last Friday's rates. At the time, those were the best of the month, so the current situation could be much worse. Moreover, the small day-to-day changes mean that we're not really talking about "rates" moving higher and lower as opposed to the closing costs associated with prevailing rates. In other words, the effective rate is changing microscopically, but not the contract rate in most cases.
As for contract rates, they continue to hold in the 4.0-4.125% range for conventional 30yr fixed loans on top tier scenarios. There is still a small minority of lenders quoting 3.875%
Yesterday, we discussed the fact that rates were increasingly likely to pull back the longer we maintained the winning streak. Now the only question is whether or not today is the extent of the pullback. There is far less certainty about the future at this point. Whereas we can easily observe a string of winning days and say "that'll probably pause soon," it's another matter altogether to comment on the duration and size of the bounce back. On a positive note, today's pull back was very non-threatening. It leaves room for those with more risk tolerance to continue floating in the hopes of a broader move lower. For the more risk-averse, it serves as a great lock signal. Either way, compared to the first half of 2015, the general rate environment in the second half remains less stressful and dramatic (or traumatic, as the case may be).
Loan Originator Perspective
"Bonds markets paused today, as tomorrow's Fed statement approaches. While it's inevitable that the Fed overnight rate will rise, the $20 question remains when. Even if that doesn't happen tomorrow, a rosy Fed outlook will push rates higher. If you're floating, discuss your risk tolerance with your loan officer. If our recent trend breaks and rates rise, he'll need to know when you want to cut your losses and lock." -Ted Rood, Senior Originator
"The rally of the last few days seems to have stalled, with treasuries pulling back some today taking lender rate sheets with them. We are in the middle of an auction week and it isn't uncommon for rates to worsen before the auction cycle completes. Once over, we quite often get a relief rally but this week we do get the FOMC. Any indication of a faster or sooner rate hike cycle will cause rates to worsen quickly. I continue to think locking once within 30 days of closing is the way to go. Way more room for rates to rise than to fall." -Victor Burek, Churchill Mortgage
"Mortgage bonds pulled back today before making a comeback in the afternoon. In the face of a major rally in the S&P, this speaks to underlying strength in the bond market. But how strong it is will be tested in the coming days and after the nice run we have had we are due for some sort of pull back. If it is a small one we could see the pull back act like a spring board and propel bonds higher bringing down home loan rates. If the pull back is a large one we will have to go back into lock mode. I do advise locking at these levels if you are closing int he coming week or 2. If you have 30 days or more float carefully." -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.0-4.125%
- FHA/VA - 3.75-4.0
- 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. The next four bullet points are currently more of a reflection about the first half of the year. July still has a chance to be the month where rates held their ground against 2015's initial push higher.
- 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 (for the better), 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. July has thus far provided an opportunity to consider such a big-picture correction might be on hold.
- 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).