August 4, 2015
After hitting the best levels in just over 2 months yesterday, mortgage rates bounced moderately higher today. The move brings them back above Friday's levels, but not quite as high as Thursday's. Most lenders are still quoting conventional 30yr fixed rates of 4.0% on top tier scenarios. The smattering of lenders that had moved down to 3.875% is somewhat smaller today, but not extinct.
The day actually began well enough, with rates roughly in line with yesterday's. It wasn't until Atlanta Fed President Dennis Lockhart commented on the likelihood of a September rate hike that trading levels shifted, forcing lenders to adjust rate sheets in the afternoon.
What does this mean? Lockhart isn't saying the Fed will necessarily hike in September, but by holding it out as one viable option, he's pushing against the market's collective psychology, which had begun to seriously discount a September hike over the past few days. The month of the hike isn't even that important. It's more to do with our general interpretation of when the Fed will hike. Lockhart's comments effectively convey "whenever you think we're going to hike, it might be even sooner."
Why is this important for mortgage rates? To be sure, the Fed's policy rate does not directly dictate mortgage rates, but the two are usually correlated. A higher Fed rate makes short term money more expensive for large financial institutions, which ultimately affects how expensive long term money is when they lend it to you. Bottom line, the Fed doesn't set mortgage rates, but if markets expect the first hike to happen sooner, mortgage rates will typically rise.
Loan Originator Perspective
"Mortgage rates worsened, ever so slightly, today, but I do not view that as anything more than positioning before the employment data scheduled to be released over the next 3 days. Rates are the best they've been in 2 months and I don't see any reason you shouldn't lock up these gains and avoid the risk moving forward." -Brent Borcherding, brentborcherding.com
"Atlanta Fed Chairman Lockhart caught bond markets' attention today when he stated a September Fed rate hike was possible. Many lenders worsened their rates in response. Tomorrow brings ADP's employment projection (the pre-cursor for Friday's NFP report), and I wish we were going into it with more positive momentum. Rates are still near 2 month lows, floating further is really throwing the dice. Happy with today's pricing? Why not lock?" -Ted Rood, Senior Originator
"Today would represent the pullback I suggested you fear yesterday. It’s a great time to lock in gains if you have them or to be defensive and lock now prior to Friday’s Jobs Report. We’ve had a nice run for the past few weeks and with the Jobs report looming I’m comfortable locking now." -Jason B. Anker, Vice President- Loan Officer at Salem Five
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).