September 2, 2015
Mortgage rates were almost flat again today. Most lenders were just a hair higher in costs vs yesterday. The most prevalent conventional 30yr fixed quote remains 4.0% for top tier scenarios, but 3.875% is still available. In general, the bond markets that drive mortgage rates are remaining nimble until they have a better sense of what the Fed will do in the policy meeting 2 weeks from now.
As we frequently discuss, the Fed Funds Rate doesn't dictate 30yr mortgage rates, but the two tend to correlate over time. Moreover, the initial lift-off from record low rates will be a big deal for financial markets in general. It would be hard for mortgage rates not to get caught up in the volatility--most likely in a bad way.
In other words, the sooner the Fed officially hikes OR the sooner the economic data makes investors think the Fed is going to hike, the worse it probably is for mortgage rates in the short term. Of course markets have already been doing their best to get ready for such an occasion, and that's one of the reasons interest rates pushed higher in the first half of 2015.
With all this in mind, the Fed Vice Chair, Stanley Fischer made some important comments last week. He said there was a strong case for a September hike and that there was "a little over two weeks before we make the decision." That was enough to let markets know that September is an imminent possibility for a hike. Fischer went on to say "we've got time to wait and see the incoming data." With that, we know that these 2 weeks of data may be helping determine whether or not the Fed hikes in September. That makes Friday's job report (this week's biggest piece of data) especially important.
Loan Originator Perspective
"Rates hovered in recent ranges again today as Friday's Employment Situation Report (aka NFP) for August looms. Some tepid economic news that might have boosted bonds (ISM, ADP jobs projection) were apparently disregarded, and as of mid PM, MBS are down slightly from the open, but not enough to incite lender reprices. For better or worse, it's all about NFP for now, we'll see if that's still the case Friday. Happy with your pricing? Sure could do worse than locking." -Ted Rood, Senior Originator
"Bonds are waiting for Friday's jobs report to make their next move. It is always risky to float into this report, so only those that can afford to be wrong should consider to do so. I think you are safe to float overnight, but regardless of trading lenders will be reluctant to pass along improvements with the jobs report coming out on Friday. Recent data has shown economy weakening some, so I think Friday's report will be good for rates...but this is just a guess. " -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).