August 31, 2015
Mortgage rates moved moderately higher today as bond traders adjusted their holdings for the end of the month. Mortgage rates are dictated by trading levels of mortgage-backed securities (which in turn, tend to move in step with US Treasuries, generally speaking). Many traders are tasked with making certain trades by the end of the month. Sometimes that has a noticeable effect on how rates move, and today was one of those days.
Unfortunately, it wasn't in a friendly direction. The day began with promise, however. In fact, many lenders were in better shape this morning vs Friday afternoon. But the market volatility began to take its toll as the PM hours approached, and virtually all lenders recalled initial rate sheets and moved higher.
In some cases, that will merely mean higher closing costs for yesterday's prevailing rates. In other cases, borrowers could see rates move up by .125%. The most prevalently-quoted conventional 30yr fixed rate for top tier scenarios remains 4.0%, with slightly fewer lenders offering 3.875% today vs Friday.
Today's mid-day changes could merely be a warning shot. The rest of the week stands the chance to be exceptionally volatile. The Fed placed a lot of emphasis on the next 2 weeks of economic data between now and their September meeting. The current week is certainly the biggest in terms of the scheduled data. Even though Fed rates don't dictate mortgage rates, any major changes in the expectations for Fed action will affect the entire market. That means today could end up being one of the tamer days of the week by the end.
Loan Originator Perspective
"Both treasuries and MBS sold off this afternoon, and we're hovering towards the top end of recent rates. It's a big data week, with September's NFP jobs report on Friday and significant economic news (ISM, ADP jobs report) earlier. The markets' angst over China seems to have abated, and we're now trading on actual data for a change. Bond markets are often hesitant to rally too much moving into NFP, I'll be locking sooner rather than later as the week progresses." -Ted Rood, Senior Originator
"So, as Fed rate hike talk picks up during a week that ends with the Jobs Report (our most important and potentially market moving economic report) I would be quite cautious. Risk has increased in my opinion so I would be locking at application most loans unless the time frame to closing was extended out past 60 days. Certainly we have room to move lower if the cards break in our favor but risk of floating far outweighs the certainty of locking at this point." -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. 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).