August 26, 2015
Mortgage rates continued slightly higher today, though they appeared to have second thoughts about that at first. In fact, several lenders made mid-day improvements to rate sheets as bond markets (which drive rates for mortgages, among other things) looked to be holding their ground. Bonds began to slide in the afternoon, following a weak 5yr Treasury Auction. As a result of that weakness, several lenders raised rates in the afternoon while others simply abstained from offering a mid-day improvement. The net effect is a conventional 30yr fixed rate range of 3.875%-4.0% for top tier scenarios. In most cases, borrowers would be seeing the same rate compared to yesterday, but with slightly higher closing costs.
Treasury auctions are thone of the many inputs at can affect mortgage rates indirectly. In a general sense, Treasury yields provide the baseline for the entire world of interest rates in the US. 5 and 10yr Treasuries are the two most active in terms of trading activity, making their fluctuations the most relevant to other sectors of the bond market (like the mortgage-backed-securities that dictate mortgage rates). Auctions provide some input on demand for Treasuries. If the demand is lower than expected, it could cause yields (aka: "rates") to move higher which, in turn, can cause mortgage rates to move higher.
While the Treasury auction definitely hurt today, the overall rate outlook has been shaky ever since global equities markets found their footing over the past 2 days. Stocks weren't able to break yesterday's highs, but they avoided breaking the previous day's lows for the 2nd day in a row. Stocks and bonds won't always correlate, but the recent panic had certainly benefited bonds/rates. Now that the panic may be subsiding, rates are adjusting higher. Until we see how far the adjustment goes, locking is safer.
Loan Originator Perspective
"We finally received something we have not in weeks and that is better than expected economic data. We also had a poorly received 5 year treasury auction and both those combined with the equity rally you would think rates would shoot much higher. Instead 10 years are up about 4 ticks from yesterday. I am encouraged by this but I do feel rates may head a bit higher before they head lower. Lock if you are closing soon but float if you are outside of 30 days." -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).