September 1, 2015
Mortgage rates didn't move much today. Whether or not you see today's rates in better shape vs yesterday depends on how your lender approached yesterday afternoon's quick deterioration in mortgage-backed-securities (the bonds that dictate mortgage rates). Many lenders recalled their initial offerings and raised rates yesterday afternoon. For those lenders, rates are slightly improved today. For lenders that didn't reprice yesterday, today's rates could actually be a bit worse. This stands to reason considering today's MBS levels are still weaker than yesterday morning's.
We're in the middle of a potentially volatile week. Today could have been one of the days that contributed greatly to that volatility, had the economic data fallen farther from forecasts. As it happened, today's big manufacturing report was just slightly weaker, and it didn't motivate much of a response in bond markets. Most lenders continue quoting conventional 30yr fixed rates of 4.0% on top tier scenarios, though 3.875% remains relatively common as well.
The potential for bigger-than-average movement can't be over-emphasized when considering the upcoming days. With the the highest volatility in stock markets since at least 2011, the Fed apparently considering raising rates in 2 weeks, and interest rates growing increasingly quiet, the stage seems set for a big break. The risks and rewards grow exponentially from here as the week progresses due to the scheduled data. If you're not willing to absorb a significant increase in mortgage costs in exchange for a chance at significant savings, now's the time to lock.
Loan Originator Perspective
"August is behind us, but not the meltdown in equity markets. I'm a little surprised bonds aren't gaining more, but August's NFP report looms on Friday, and is likely limiting our gains. My pricing today was virtually identical with Monday's, and I'm still in a "lock sooner rather than later" mode. With best ex rates right around 4%, there's nothing wrong with taking risk out of the equation." -Ted Rood, Senior Originator
"Mortgage bonds have been able to hold on to the lower end of the channel I have written about before. As long as we hold this level floating could be beneficial. It does however come with some risk being that Friday brings with it the NFP numbers. If you do float check back Thursday for guidance ahead of the Jobs Report." -Manny Gomes, Branch Manager Norcom Mortgage
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).