September 11, 2015
Mortgage rates are doing absolutely everything in their power to avoid making any sudden movements ahead of next week's potential volatility. It's not mortgage rates per se, but rather, multiple market sectors have been trading in increasingly narrow ranges this week.
As we've discussed, next week's Fed Announcement is the big deal on the near term horizon because it's the first real opportunity for the Fed to lift its policy rate from 6 years at all-time lows. While this sort of rate hike doesn't necessarily translate to mortgage rates, any major changes in Fed policy can cause volatility across markets. Historical examples of Fed rate hikes following longer stints at longer-term lows show multiple outcomes. That means there are indeed examples of Fed rate hikes followed by falling mortgage rates. In other words, we're talking more about the volatility potential and less about the likely direction.
With markets simply trying to bide their time until next Wednesday, trading levels didn't change much today in the mortgage-backed-securities (MBS) that underlie mortgage rates. There was some slight improvement, which translated to modestly lower closing costs for the same old 4.0% that most lenders continue to quote on top tier conventional 30yr fixed scenarios. 3.875% is still available among some of the more aggressive lenders, while 4.125% is far less common.
Loan Originator Perspective
"The narrow range for rates continue. The 10 year yield has so far been well contained at the 2.20-2.22 level. Should these levels be violated we will be in trouble should they continue to hold we could see rates improve. The market is at a tipping point and the Fed meeting next week will hold the needed weight to see which way things will tip." -Manny Gomes, Branch Manager Norcom Mortgage
"Rates rode the same wave today, surfing along nearly unchanged. It appears nothing/little will change until the Fed statement is released next Wednesday. The wild card then isn't just what the Fed does/doesn't do, it's how markets react. Unless you really enjoy gambling and adrenaline, probably best to lock by Wednesday morning. Rates COULD drop, but would likely require a negative Fed economic outlook, and I don't expect that." -Ted Rood, Senior Originator
"Everyone including lenders pricing mortgage loans are in a Fed wait and see mode right now and Interest Rates continue to bounce around in a fairly tight range. Fed rate decision looms next week, however, and the odds rise sharply that volatility increases. This means risk goes up as well. Floating into next week seems reasonable unless you're within 15 days of closing and you are okay with current pricing. I would likely be locking before the Fed decision, however, as the risk is too great." -Hugh W. Page, Mortgage Banker, SeacoastBank
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).