August 27, 2015
Mortgage rates were just barely higher today, greatly decreasing the momentum in a now 3-day losing streak. The timing of these movements is important as it relates to Freddie Mac's widely disseminated mortgage rate report. Freddie's weekly rate report is gospel, and indeed it's very accurate given the limitations of its methodology. Sometimes those limitations come to the surface and create confusion.
For instance, Freddie is reporting mortgage rates at the lowest levels since May. The catch is that Freddie's data never includes Thursday or Friday rate sheets, and rarely captures Wednesday movement. That matters because Thursday and Friday of last week were the actual 3-month lows (as we discussed last week). That means that this week's Freddie survey is being measured against rates that are higher than they should be. In other words, the bar was set low in terms of how much rates would need to improve to claim 3-month lows.
The timing issues were further compounded by the fact that Monday of this week saw even lower rates, and most of the folks Freddie surveys get their responses in by Monday or Tuesday. Since then, rates have risen quickly. They're appreciably higher than those Thu-Mon rates (for some lenders, as much as .125% higher). Whereas conventional 30yr fixed quotes were edging toward 3.75% at their lowest recent levels, they're now closer to 4.0% for many lenders. This is more in line with the first few days of last week, meaning the most accurate way to discuss rates today, is to say they're unchanged from early last week, and much higher than Thursday-Monday's offerings.
Loan Originator Perspective
"After losing ground since Monday AM's market panic, rates leveled off today following a strong 7 year bond auction. We're essentially back to early August levels, the question is where we go from here. China's economy certainly hasn't turned around in 3 days, but I doubt we'll see such a massive reaction to any further developments. I don't see an imminent rally looming, so would lean towards locking early in the loan process at this point. " -Ted Rood, Senior Originator
"With treasury supply out of the way, I think floating into tomorrow is worth the risk. Today's final auction was the best of the week, so hopefully we can get back some of the recent losses. We have still global growth concerns despite the recent rally in stocks which should help prevent bonds from selling off much further." -Victor Burek, Churchill Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.875 - 4.0
- 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).