September 21, 2015
Mortgage rates couldn't maintain last week's impressive move lower following the Fed Announcement. At the time, rates were moving lower for ECONOMIC reasons. At the risk of oversimplifying, the Fed essentially conveyed a gloomy longer term outlook on the economy and this tends to put downward pressure on rates.
The economic outlook is only one of the factors that affect rates. Supply and demand in the bond market is also a consideration. Higher supply causes sellers to lower prices to compete. When prices fall, rates rise. This was the case today as bond markets coped with an unexpectedly large glut of supply. Mortgage rates were less affected than other sectors because the bonds that underlie mortgages weren't the subject of the increased supply. That said, they are interconnected with other parts of the bond market, and thus share some of the pain.
Most lenders adjusted rate sheets higher before the end of the day. Even then, today's rates are still much better than those seen on the morning before last week's Fed Announcement. In other words, if you didn't lock on Friday, today's losses are small enough that you'll still be benefiting from much of the post-Fed move.
Loan Originator Perspective
"Bonds gave back some of the gains we enjoyed last week after the dovish FOMC announcement. I liked floating over the weekend, but pricing today is slightly worse than the last rate sheets from Friday. I would only lock today if within 15 days of funding. I think longer term closings should float to see if last weeks rally can be built on in the days ahead." -Victor Burek, Churchill Mortgage
"Bond markets gave back more of last Thursday's gains today, and remain within recent ranges. As I've said before, it appears we'll need remarkable motivation for rates to break significantly lower. For now, I'm in a "lock sooner than later" mode for most borrowers, particularly those with tight debt ratios or looming closings." -Ted Rood, Senior Originator
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).