August 7, 2015
Mortgage rates were surprisingly calm today, especially in light of the fact that the big jobs report was released this morning. This report has more potential to move rates than any other piece of economic data, though you wouldn't know it by today's reaction. Part of this--even most of this, perhaps--is due to how close the numbers were to the median forecast (215k nonfarm payrolls created vs expectations for 223k). Had the number been over 250k or under 200k (both very much within the realm of previous results) we would likely have seen a bigger move higher or lower.
As it stands, the slightly weaker economic data is consistent with slight improvements for the bonds that underlie mortgage rates. Most lenders continue to quote conventional 30yr fixed rates of 4.0% on top tier scenarios, but with slightly lower closing costs today. The more aggressive lenders are increasingly able to quote 3.875% after these sorts of moves, though others are still stuck at 4.125% unless bond markets improve a bit further.
As of today, rates have improved for 3 straight weeks. As far as trends of successively positive weeks, that's "mature." That's important to know because even when a stock or bond or anything else in financial markets is moving in one direction for a long time--even if it's much longer than 4 weeks in the long run--it rarely does so without periodic corrections. In other words, we may soon see a bit of weakness due to all the recent strength. The simple conclusion for anyone interested in or able to lock, is that next week might provide good opportunity for that.
Loan Originator Perspective
"Interesting reaction to non farm payrolls in the bond market today. The pretty decent report should have sent bonds into negative territory but they rallied today allowing most lenders to reprice for the better. If you floated into this report, I would float until Monday to see if the rally can continue and to allow time for lenders to pass along the gains. " -Victor Burek, Churchill 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).