August 3, 2015
Mortgage rates continued lower today, adding to an already impressive streak of improvement that began in mid-July. Much of that improvement has come courtesy of increasing concerns over the trajectory of global growth and inflation. When investors downgrade their growth outlook, they often move more money into bonds. Greater demand for bonds brings bond prices higher and rates lower.
This was the case today as several pieces of economic data suggested weaker growth and inflation this morning. Markets responded by moving money out of stocks and into bonds. Among the bonds that benefit are the mortgage-backed-securities (MBS) that dictate mortgage rates. With rates already at 2-month lows on Friday, this means the winning streak is simply extended. You'd now have to go back to May 28th to see rates as low as today's. Most lenders are quoting either 3.875% or 4.0% on top tier scenarios for conventional 30yr fixed loans.
As with any streak of solid gains, it can always make sense to lock. That said, there are always certain borrowers that are more risk-tolerant or who are willing to accept the possibility of higher rates in exchange for the chance at lower rates. The risk takers continue to be in a better position over the past few weeks than they had been through mid-July. We're at a point where the longer term trend toward higher rates in 2015 is facing imminent defeat. The catch is that it's the rest of this week's data that may determine that. If the data is stronger than expected, rates could easily snap back higher. Bottom line: lowest rates in 2+ months, and a risk of a bounce back despite a decent enough chance for further gains. Hard to go wrong here as long as you set yourself a limit as to how much you'd be willing to lose before locking at a loss.
Loan Originator Perspective
"Mortgage Rates continued to improve, again, today. We've continued to see improvement over the last few weeks, and gambling that they continue to go lower can be very enticing. That said, there is nothing wrong with locking in rates at multi-month lows and in fact, should rates rise you're going to wish that you did." -Brent Borcherding, brentborcherding.com
"On Friday, I wondered how much of last week's rally came from month end bond purchases. We got our answer today, as the gains continued and pricing improved again. This Friday brings the July Employment Situation (aka Jobs Report/NFP) report. Historically, bond demand prior to NFP can weaken, as a strong report will move rates upward. With that in mind, today's rally is certainly welcome. If you float this week, do so carefully, as there is a host of economic data prior to Friday's main event. " -Ted Rood, Senior Originator
"The rally in mortgage bonds continued today as economic data once again disappointed. This week we do get the biggest moving data in the way of the Jobs report. With all the pricing we have gained in the past few weeks I think the safe bet would be to Lock at these levels for the risk reward favors it." -Manny Gomes, Branch Manager Norcom Mortgage
"Great rally we've had in mortgage pricing over the last 2 weeks, however, two things give me pause to be very cautious. One, the rally appears to be getting a little bit "extended" to me. Two, lots of economic data this week culminating in the Jobs Report this Friday. This creates a high risk environment in my opinion. Personally, I would take this good fortune of improved pricing and lock up my loans now to protect what we have. Certainly further improvement is possible but I think risk warrants carefuleness here." -Hugh W Page, Mortgage Banker, SeacoastBank
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. The next four bullet points are currently more of a reflection about the first half of the year. July still has a chance to be the month where rates held their ground against 2015's initial push higher.
- It's a highly uncertain time for global financial markets. There is much debate over whether or not the global economy is turning a corner (for the better), thus justifying a widespread move to higher rates. That's made 2015 significantly more volatile than 2014 for markets. This means lender rate sheets may change appreciably from day to day, and sometimes even several times in the same day.
- Bottom line: European Quantitative Easing helped push global rates to all-time lows in April. Now, the big risk for mortgage rate watchers is that we might have turned a long term corner. That risk is being compounded by speculation about the Federal Reserve raising rates by the end of 2015.
- May and June have amounted to the 2nd major move higher bounce so far this year. Every time this happens, we have to consider the possibility that this will be a big-picture, long-lasting correction. Until such a thing can be ruled out, Locking makes far more sense. July has thus far provided an opportunity to consider such a big-picture correction might be on hold.
- 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).