August 17, 2015
Mortgage rates improved just slightly today, but for most lenders, it was enough to erase the weakness seen last Friday. Behind the move was much weaker-than-expected manufacturing data out of New York. Weak economic data tends to encourage investors to buy bonds. Among those bonds are the mortgage-backed-securities that dictate mortgage rates. As more are bought, prices rise and rates fall.
All that having been said, the move was small, with most lenders continuing to quote conventional 30yr fixed rates of 4.0% for top tier scenarios. Today's improvement (like most) would be seen in the form of slightly lower closing costs for the same old rates. There are still a few lenders on either side of that by an eighth (3.875% or 4.125%).
Loan Originator Perspective
"It seems we are in the midst of an orderly rate rally. Rates have been progressively improving since early July after a period of volatility beginning in June. I’m inclined to float right now but I’m keeping my eye on a few important events. The first is the release of the FOMC Minutes on Wednesday and the potential of a technical break below 2.1 for the 10 year treasury. We could see lower rates from here if they both are in our favor." -Jason B. Anker, Vice President- Loan Officer at Salem Five
"If you floated over the weekend, you should be offered slightly better terms today. Floating will become risky heading into the inflation data and FOMC minutes on Wednesday. I would advise to take what you can and lock today." -Victor Burek, Churchill Mortgage
"Bonds rallied today on a dismal Empire State manufacturing report, staying within a small range all day. It's always a plus when bond prices don't fluctuate, as secondary desks like predictability, and can price loans lower when markets are stable. We are (once again) approaching resistance for both treasuries and MBS. The question is whether we hit it and bounce to higher rates, or break through. Those locking today can rest assured they're getting some of the best pricing in a month. Those floating need to clearly define what their risk tolerance is, in case rates do bounce back up." -Ted Rood, Senior Originator
"Mortgage bonds rallied following the much weaker than expected Empire State report which clearly showed things are slowing down. The interesting thing is Equities initially sold off and then rallied during today's session. If the strength in equities continues and is not phased by the inflation data and the FOMC minutes bonds could suffer. Floating is risk is elevated due to this and locking should strongly be considered. Now if you have time your side meaning over 30 days to get to closing you could float for if the stream of bad data continues and the FOMC minutes indicate the odds of a September rate hike are high we could see rates improve down the road." -Manny Gomes, Branch Manager Norcom 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).