August 10, 2015
Mortgage rates moved slightly higher today, erasing the modest improvements seen on Friday. There wasn't much movement in the secondary mortgage market (which drives rate sheet changes) during the day, though a few lenders raised rates slightly in the early afternoon. Most continue to quote conventional 30yr fixed rates of 4.0% for top tier scenarios. There are still plenty of lenders at 3.875% and far fewer at 4.125%.
As we discussed last week, rates had improved for 3 straight weeks as of Friday, and that chances of a bounce back increase exponentially after that. In other words, it's not common to see 4 weeks in a row of lower rates. Even if the longer term trend were to remain pointed lower, there would still be periodic corrections. On the chance that this proves to be one of those weeks, it represents a great short term locking opportunity, especially considering there was minimal damage today.
Loan Originator Perspective
"I continue to favor locking all loans closing within 30 days. I do not see much benefit in floating as there is much more risk to the upside then to lower interest rates. If you do wish to float, make sure you stay in touch with your loan officer daily to access where the market it. I think the next opportunity for rates to move lower will be after Retail Sales and import/export prices on Thursday." -Victor Burek, Churchill Mortgage
"I am feeling LOCKY. That is right after such a great run for MBS securities we are due for either a pause of a pull back. It is time to take risk of the table and lock your applications in. History tells us the odds of rates increasing in the near term are higher than decreasing. I am still positive and believe rates will be lower weeks from now but do feel it is smart to not take any bets at the moment." -Manny Gomes, Branch Manager Norcom Mortgage
"Bonds sold off somewhat today amid an impressive equities' rally. Fortunately, MBS (mortgage backed securities) fared better than treasury bonds, and my pricing was close to Friday's. Looks like we're back in the same familiar pattern/range. Rates improve until 10 year treasuries hit 2.15% or so, then worsen until they hit the upper 2.2's. Since we're still closer to the bottom of the range than top, I'm in a locking mode. I don't see Greek or fiscal drama creating urgent demand for bonds, so if a rally is looming, don't know where it would come from." -Ted Rood, Senior Loan Originator
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 began with a strong move to the lowest rates seen since May 2013. The catalyst was Europe and the introduction of European quantitative easing. Investors bet heavily the move lower in European rates and domestic rates benefited as well. But with those bets finally drying up in April and with the Fed seemingly intent on hiking rates in the US, May and June saw a sharp move back toward higher rates. The implicit fear is that global interest rates set a long term low in April, and have now begun a major move higher.
- July said "not so fast" to that potential "big bounce." Some of the data began to suggest the Fed is still a bit too early in talking about raising rates in 2015--particularly, a lack of wage growth or any promising signs of inflation. But Fed proponents maintain that low inflation is a byproduct of temporary trends in the value of the dollar and the price of oil, and that once these factors level-off, inflation will ultimately return. That side of the argument suggests that inflation could increase too quickly if the Fed hasn't already begun normalizing interest rates.
- With all of the above in mind, locking made far more sense for the entirety of May and June, and we were not shy about saying so. The second half of July saw that conversation shift toward one where multiple outcomes could once again be entertained. In other words, we went from "duck and cover!" to "let's see where this is going..."
- Bottom line, locking is always the safest bet and it was the only bet from late April through early July. Since then, there's been room for other points of view. We should know a lot more about how valid those points of view are as August and September progress.
- 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).