August 25, 2015
Mortgage rates moved higher today as global markets managed to avoid the same sort of panicked volatility seen yesterday. The month-long trend toward lower rates was already looking tired as of late last week, and it took the extreme movements in other markets to drag rates only modestly lower yesterday. Nevertheless, those were the lowest offerings in more than 3 months. They brought the average conventional, 30yr fixed rate for top tier scenarios well into the 3's. 3.875% was widespread and some lenders were offering 3.75%. Today's bounce puts us back at 3.875% more squarely, with a few of the less aggressive lenders at 4.0%.
With respect to the markets that underlie mortgage rate movement, today was more about consolidation and correction. That's market-speak for "taking a break and catching breath after a hard run." These sorts of corrections don't typically give hints about the next move from here, and this one is no exception. Even so, it makes sense to guard against the possibility that Monday marked the recent lows. In other words, there's a better case to be made for locking vs floating at the moment. Risk-takers (aka: those willing to lose some money in exchange for the chance to save some money) might not want to run for the exits just yet though. It would take a more substantial move higher in rates to derail the positive trend in place since mid July.
Loan Originator Perspective
"Our volatility continued today, with bond prices falling in the afternoon. Looks like Monday AM's low rates were the bottom, will take serious panic to get us back to those levels. I was in favor of locking yesterday, and today it's even more obvious. Rates are on their way back up, we hope just to the 4-4.25% range. Lock 'em if you've got 'em." -Ted Rood, Senior Originator
"We have had a great run but all runs take a pause at some time. Today was one of those days we were gave up gains and rates worsened. As I mentioned yesterday it is a good idea to lock if you have a closing date coming up. I do believe the trend for rates is lower so if you have have over 30 days before closing or more you can float and wait for the next leg lower for rates. " -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.875
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.125 - 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).