August 28, 2015
Mortgage rates didn't move much today. Depending on the lender, effective rates were either slightly higher or lower vs yesterday, with the average lender being just microscopically lower in rate. Keep in mind that the improvement would only be detectable in the form of lower closing costs, if at all. In most any case, the actual contract rate would be the same as yesterday. As such the losing streak (of higher rates) over the previous 3 days is now essentially over. This doesn't mean rates can't rise any more from here, just that they'd need to find a new reason to do so, instead of merely cooling off after a big spike lower.
Days like today, where lenders move in opposite directions, are not that common. They tend to occur around periods of increased volatility, which we've certainly had this week. It creates situations where the underlying markets that dictate mortgage rates are moving faster than some lenders' typically adjust rate sheets. For instance, if "Lender A" usually adjusts rate sheets after a certain market movement and "Lender B" usually wants to see a bigger market movement or wait longer before adjusting sheets, Lender B may well be waiting for the following morning's rate sheets before adjusting for market conditions. Say rates were improving yesterday and the early lenders adjusted sheets in the afternoon. In that case their rate sheets this afternoon wouldn't look much different (markets are in similar territory). Lender B, on the other hand, would be in better shape vs yesterday's latest rate sheet because they never adjusted for the improvement in the first place.
Whether fast or slow moving, most lenders are in agreement that conventional 30yr fixed rates of 4.0% are most prevalently-quoted for top tier scenarios. 3.875% is a close second.
Loan Originator Perspective
"A promising start faded today, as MBS lost their initial gains. Fed members' comments from their Jackson Hole meeting didn't help. Some lenders recalled rate sheets, others may have followed before markets closed. It's nice to hold our ground, but despite Monday's large gains, we're closing near the highest rates of the week. I don't see a short term motivation for rates to drop substantially. For most borrowers, I'll continue to advise locking early in the process, if within 30 days of closing." -Ted Rood, Senior Originator
"The benchmark 10 year note has been holding just under 2.20 for the last couple days. As long as we hold under that level, I think if you can tolerate the risk, I would float. Month end tends to be supportive for rates, plus today is Friday and I don't favor locking on Fridays. I would float over the weekend, and see what the last day of September brings us on Monday. But of course, if you are happy with your current terms, lock and don't look back." -Victor Burek, Churchill Mortgage
"Since mid July mortgage bond have been trading within an upwards sloping channel. Think back to high school math and recall perpendicular lines. Rather than these kines being horizontal they are sloping upwards from left to right. Pricing tends to move between the bottom end of the range and the top end of the range when trading in a channel. This means if we remain in this channel rates 30 days from now should be lower than today. I am recommending to float all long term closing while we remain in the trading channel." -Manny Gomes, Branch Manager Norcom 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).