September 10, 2015
Mortgage rates were not able to build on yesterday's modest improvements. Most lenders ended up back in line with their worst recent levels. Thankfully, that's not saying much considering the exceptionally narrow range. Indeed most borrowers won't even detect day-to-day movement this week as contract interest rates haven't even been affected. That means that any mention of "rates" moving higher or lower is a reference to the changes in upfront borrowing costs. Those costs have a bearing on the effective rate, but not the actual NOTE rate on the loan.
Lenders continue to quote conventional 30yr fixed rates of 4.0% most frequently with some top tier scenarios still seeing 3.875%.
If there's one place to assign blame for this general lack of movement, it's next week's Fed Announcement. Even though the Fed rate does NOT dictate mortgage rates, and even though there's no guarantee the Fed will make any changes, the wide range of potential outcomes has financial markets feeling anxious. This is especially true of interest rates. Investors who buy and sell the bonds that ultimately dictate consumer rates prefer to stay nimble so they can react to whatever ends up happening next week. This is a situation that greatly decreases the incentive for floating. The biggest risk and reward would be for those thinking about rolling the dice beyond next Wednesday Fed Announcement.
Loan Originator Perspective
"Mortgage bonds continue to trade in a very tight range. We did get a pretty good auction today but it failed to spark any kind of rally. Mortgage bond use to do well when equities tanked like they did yesterday and suffered when they rally like today. The old ruled do not appear to apply. We have not had a trading range this narrow for mortgage bonds in over 12 months. We have a big move ahead and we may not know the direction until the Fed meeting next week.. If you don't mind taking on some risk floating can pay off. If you hate risk lock in." -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).