September 28, 2015
Mortgage rates moved noticeably lower today, getting the average lender back in line with some of last week's best levels. For most, that means conventional 30yr fixed rates of 3.875% when it comes to top tier scenarios, but some lenders remain at 4.0%. Many borrowers will still be seeing the same rates compared to Friday, with the gains being seen in the form of lower closing costs or higher lender credit. There have only been a handful of better days for rates since early May 2015.
Today's strength came courtesy of broader economic weakness--or fear of weakness. Mortgage rates are highly correlated with bond yields such as longer term US Treasuries (like the 10yr note) because the mortgage-backed-securities (MBS) that dictate rates tend to offer investors many of the same benefits/features. MBS and Treasuries are both part of the broader 'bond market.' There's an age-old cliche in financial markets that bond yields and stocks tend to move in the same direction.
Of course, much of the QE era taught us just how UNtrue that can be, depending on the current events. But there is still something to be said for the concept of investors moving away from riskier assets and into more 'safe-haven' type assets. This was the case today as investors sold stocks and bought bonds. More buying demand in bonds causes their prices to rise and yields (or "rates") to fall.
Loan Originator Perspective
"We are back to the bottom of the current range that we have been unable to break. Following the simply strategy, float the highs, lock the lows, it would make sense for everyone closing within 30 days to strongly consider locking. That said, month end tends to be supportive for bonds but we do have payrolls data on Friday. It has been pretty much very consistent going into the non farm payrolls report. Rates tend to worsen going into the report, which may offset the benefits of month end support. I like locking here." -Victor Burek, Churchill Mortgage
"Rates are back to the floor they have hit a few times in past weeks. Given the weakness in equities I would have liked to see a stronger move lower for rates. Bond traders may be a bit skittish but if we break these recent lows we could see rates improve by .25%. I however think that break could be weeks away if it does come to fruition. I would be locking and taking these gains." -Manny Gomes, Branch Manager Norcom Mortgage
"Stocks sank (go figure) and rates settled lower today. Once again, we're near the bottom of our recent range. The question is whether we'll finally break it, then hold the gains long enough for borrowers to lock their loans. Some dovish Fed member comments today may have helped us, as well. I'd love to be wrong, but don't see enough motivation for bond markets to break through well established resistance. I can see floating short term, but would be ready to pull the trigger quickly as soon as rates start rising." -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).