September 18, 2015
Mortgage rates continued a strong move lower today as momentum continued following yesterday's Fed Announcement. While the Fed doesn't dictate mortgage rates, this particular announcement sent shockwaves through all corners of financial markets. It wasn't so much that the Fed avoided raising rates as it was the implicit commentary on the fragile state of the global economy. A weaker economic outlook tends to put downward pressure on longer term rates like 10yr Treasury yields and mortgage rates.
Both yesterday and today's moves were significant. Whatever damage had been done over the past several months--whatever volatility buffers seen in lenders' rate sheets--all of it has been erased today. With the exception of only one other day at the apex of the late August market volatility, rates are as low as they've been in just over 4 months. Many lenders are now back to quoting conventional 30yr fixed rates of 3.875% on top tier scenarios, and we'll soon see the more aggressive lenders at 3.75% if this pace continues.
Should you lock or float? In a word: yes. No one could fault a lock decision with rates near 4 month lows. For those who understand and accept the risk of loss, that risk is now much smaller than it was heading into yesterday's Fed Announcement. If rates ended up being higher next Monday, floaters would essentially be paying for the chance to see if this winning streak can continue.
Loan Originator Perspective
"Lender rate sheets are much improved over yesterday thanks to the bearish FOMC announcement and press conference. I think we could move even lower over the near term; however, any time rate sheets are substantially better it is wise to consider locking in the gains. But it is Friday, and I do not like locking on a Friday. I would float over night, but nothing wrong with locking." -Victor Burek, Churchill Mortgage
"All the fear of rising interest rates in the near term evaporated yesterday when the Fed threw everyone a little curveball suggesting that rates may be lower for a longer time. How much longer is still up in the air. So, I think we've gone back to a rate environment for borrowers where one can be more patient to lock in if they have a longer term closing period (beyond 30 days). But, the Fed may have also injected the potential for more volatility so I would still be monitoring things closely and be in a position to pull the trigger if necessary. If you like what you got right now, and you're closing is less than 30 days, locking up pricing on a positive day makes perfect sense." -Hugh W. Page, Mortgage Banker, SeacoastBank
Today's Best-Execution Rates
- 30YR FIXED - 3.875-4.0%
- 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).