August 21, 2015
Mortgage rates moved moderately lower yet again. This extends a winning streak that began on July 14th, making it the longest positive trend in 2015. If this seems paradoxical in light of everything you may have heard about the Fed hiking rates this year, that's normal. Market participants and pundits have a long history of getting too attached to a certain idea only to be punished by markets for the imbalance.
In other words, the notion that rates would continue rising was too prevalent. But that's only part of the motivation for rates to be doing so well recently. At the heart of the matter are concerns that the global economic growth outlook may be dimming. That's a scary thought considering Europe is in the midst of ongoing quantitative easing and that China has taken somewhat desperate steps to bolster its economy and markets. Top that all off with the absence of QE in the US as well as the Fed's rate hike rhetoric and all the ingredients are there for market participants to wonder how bad things might look after the various extraordinary interventions around the world are curtailed.
It's a scary thought, and investors expressed their fear today by selling stocks and commodities. Many times, fear is also managed by buying bonds, which in turn leads to lower rates. This was the case today, but not at all to the extent that history suggests. The lack of response in bond markets could be explained by the fact that the winning streak is as long as it is. After a certain point, it takes more and more bad economic news for rates to continue to fall.
The average conventional 30yr fixed rate for top tier scenarios is closer to 3.875%, though 4.0% remains prevalent. Today's rates are the lowest in at least 3 months.
Loan Originator Perspective
"What a nice week for rates and bonds (if not for equities). We're nearing our lowest rates since late April, and it seems doubtful that China/other world economies will overcome head winds in the next couple of weeks. While I'd like to see bonds rally further as stocks dive, the gains we've logged are pretty impressive. There's really no incorrect "lock/float" decision now. If you do float, however, have a stop loss in mind, as in "Mr. Loan Officer, if my lender credit drops to ____, please lock my loan to avoid further losses." Communication is the key, hopefully all parties can stay in touch!" -Ted Rood, Senior Originator
"We have seen pretty nice improvements on rate sheets, so if you been floating you could lock today with better pricing. With todays move lower, I am thinking this move might have a little more room to run. Plus, I am not a huge fan of locking on a Friday. If you can tolerate the risk and want to double down, I would float until Monday." -Victor Burek, Churchill Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.875 - 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).