August 13, 2015
Mortgage rates continued higher today as the recent volatility in global markets subsided. Treasury yields and mortgage rates both benefited from the uncertainty caused by Tuesday's big news out of China. They continued to improve until China stepped back in to buoy its currency (Yuan). Long story short, when China said Yuan would no longer be artificially propped up by state-owned banks, global markets freaked out. Money rushed into safe havens like US Treasuries (which in turn benefited mortgage-backed securities). More demand for bonds in the US meant lower rates (think: investors clamoring for your mortgage business). Then when China recanted on Tuesday's announcement, things started calming down and the demand for US bond markets ebbed (which means mortgage rates moved back up).
If that's still too abstruse, here's an even simpler version:
China said some stuff on Tuesday that made people sorta scared about global economic growth in the long term and about market volatility in the short term. Scared investors tend to buy bonds, which brings rates lower. Then China did some stuff yesterday that made folks less scared and the process continued to reverse today. In fact, we're right in line with the rates seen the day before the China drama.
Most lenders continue to quote conventional 30yr fixed rates of 4.0% for top tier scenarios. Several of the more aggressive lenders continue to quote 3.875%. Most other rates are out of the market (provided we're talking about true "top tier" scenarios. Otherwise, 4.125% is also still prevalent).
In terms of lock/float strategy, this is the pull-back that serves as your cue to take advantage of recent gains. As always, there's never any way to know if rates will resume their recent downward trend. But we can observe that the trend has been steady since July 14th and is now wavering. This tilts the risk/reward scales in favor of locking for now.
Loan Originator Perspective
"China's monetary woes and currency devaluation seem to have eased (for the moment, anyway), and rates edged upward today. We're still near the lowest rates since early July, which is good news, but the trend lower is far from guaranteed. I've advised floating borrowers within 30 days of closing to lock their pricing, and encouraged those closing later to at least consider it. We've logged some great gains over the past 3 weeks, and there's no shame in guaranteeing your pricing by locking now, rather than waiting while hoping for further improvements." -Ted Rood, Senior Loan Originator
"Consumers and loan originators were rejoicing on Wednesday morning as yields fell to their best levels since early May...but the party was short lived. Following a weak 10 year auction yields have moved higher taking back all the gains following the surprise announcement from China. At this point the damage to rate sheets has been done, and I think yields might rally back soon. If you can tolerate the risk, I would float overnight and see what happens tomorrow. New supply of treasury debt is now past which might help end this reversal." -Victor Burek, Churchill Mortgage
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).