September 25, 2015
Mortgage rates rose moderately today as investors moved back into riskier assets this morning. Stock markets made solid gains in premarket trading and global interest rates moved higher (the two are frequently correlated). In fact, stock prices and bond yields (aka "rates") have been moving together more than normal recently--a sign that investors are uncertain about the the direction and size of the next significant movement. The correlation broke down in the afternoon as stocks sank but rates remained elevated (this isn't too much of a surprise on a Friday afternoon as it connotes investors closing out trading positions ahead of the weekend).
Given the fact that all of the day's weakness was in place by the time MBS (the mortgage-backed-securities that dictate lenders' rates) began trading for the day, lenders simply came out with higher rates in the morning and that was that. There were a few lenders who improved their rate sheets just slightly as markets held their ground, but not enough to affect contract interest rates. Most lenders continue to quote conventional 30yr fixed rates of 3.875-4.0% for top tier scenarios.
Loan Originator Perspective
"With the benchmark 10 year note closer to the top of the recent trading range then the bottom, I like floating all loans over the weekend. We have support just over head which should help prevent any big moves towards higher rates." -Victor Burek, Churchill Mortgage
"We're stuck in a confined range on interest rates which can break in either direction. I believe the current range is a great place to be, and I hope it stays here forever. Mortgage rates are very attractive and locking in makes sense, albeit we may some improvement next week......then again, we could see the opposite as well. Locking is certainly the safe and intelligent approach for all loans, but more relevant for loans closing within the next couple of weeks." -Constantine Floropoulos, Quontic Bank
"Mortgage rates took the recent Fed Meeting and Fed Chairman Speech in stride and we continue to bounce up and down within a range. As we approach the last quarter of the year there's a good chance we'll continue to see this sideways volatility within the range type activity continuing until something of significance causes the trend to move us out of the range. That impetus could come out of nowhere to surprise us so I would maintain vigilance in keeping close tabs on the market. I would be locking in pretty much all loans closing within 30 days and strongly considering it on all loans. Risk still seems high to me." -Hugh W. Page, Mortgage banker SeacoastBank
""The range is the range until it isn't anymore" is a phrase that sums up MBS' movement lately, and today was no exception. Rates have gone up ever so slightly since Tuesday, and it appears we're looking at more of the same until some nuclear event forces them up/down. When rates' direction is unclear, I typically will lock loans within 30 days of closing, unless clients fully understand their pricing could well worsen. Happy with your loan's pricing? My vote is lock and never look back. One in the hand, and all that....." -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..." Even the Fed took a similar stance when it held off raising rates when it had an excellent opportunity to do so in September's meeting.
- 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).