August 6, 2015
Mortgage rates made up some of their recently lost ground today, moving slightly lower in concert with falling stock prices. Bonds (which include the mortgage-backed securities that dictate mortgage rates) don't always follow movements in stocks, but the two can often be sending the same message regarding investors' view of risk. When investors favor risk, they tend to seek the higher potential returns associated with stocks. When investors seek stability, they tend to favor bonds. Now, there are plenty of days where both can be moving the same direction for a variety of reasons, but today wasn't one of them. Bonds got the nod, meaning more investors wanted to front the cash in exchange for fixed payments over time. Think of it like "lenders competing for your business." More competition = lower rates.
In today's case, the amount of movement wasn't extreme. Indeed, many mortgage borrowers will only see the change in the form of lower closing costs on the same rates quoted yesterday. The most prevalently-quoted conventional 30yr fixed rate for top tier scenarios remains 4.0%. A few of the lenders that had moved up to 4.125% came back down to join the rest of the pack today, and few others moved back down to 3.875%.
Tomorrow brings the all-important jobs report (officially "Employment Situation"). This is the single most important piece of economic data each month, and tomorrow's is no exception. In fact, given some of the mixed signals from other economic reports recently, the jobs report may be taken as a "deciding vote" of sorts, when it comes to the state of labor markets. If it's much stronger than expected, there could be tremendous upward pressure on rates. If it's significantly weaker, it could cast serious doubt on the Fed's justification for a 2015 rate hike. While Fed rates don't dictate mortgage rates directly, the pushing-back of rate hike expectations would be immediately felt across the entire rate spectrum (i.e. mortgage rates would move lower).
Loan Originator Perspective
"With Rates slightly improving today ahead of the Jobs Report tomorrow I’m inclined to lock. I’d think the Fed will be watching this report closely for signs that the economy is ready for a rate hike in September. If that evidence exists we could see a large negative move tomorrow. As always, this is a big, important report and it is to be respected. " -Jason B. Anker, Vice President- Loan Officer at Salem Five
"We saw modest pricing improvements today, and recouped yesterday's losses while remaining above Monday's rates. It's typical for movement to be muted as major events like Friday's NFP report near. As always, a robust report translates to higher rates, a disappointing report usually helps rates. We're currently close to the low end of rates' recent range, which has me wondering how much we'd gain, even with a tepid report tomorrow. Not a slam dunk call, but for clients happy with current pricing, there's no shame in locking." -Ted Rood, Senior Originator
"Tomorrow bring the big ticket item for the month in the way of the NFP report. This report has led to large moves in almost ever release. This is also one of the last reports the FED will have to base labor markets on ahead of their meeting next month. This will certainly give the next move additional strength. While I am in the camp which believes rates will improve from current levels it is not smart or safe to float into tomorrows report. There is just to much risk and potentially a large cost to that gamble. " -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.0%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 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).