September 3, 2015
Mortgage rates continued their recent trend of almost imperceptible movement today. This time, things improved ever-so-slightly with most lenders lowering the upfront costs associated with prevailing rates. In other words, the underlying market movement continues to be small enough that rates, themselves, are rarely changing from one day to the next. Instead, it's the upfront borrowing costs (or lender credit, depending on the scenario) that are acting as the fine tuning adjustments.
In terms of coarse adjustments, most lenders are quoting conventional 30yr fixed rates of 4.0% on top tier scenarios, though 3.875% is still fairly prevalent.
All of this narrow range business could change abruptly in the next two weeks, and certainly as early as tomorrow morning. The Employment Situation Report (or "jobs report") is the most important piece of economic data on any given month, and this iteration is doubly important because it will either help or hinder the Fed's rate hike efforts. As recently as last week, a top fed official specifically referenced this week of data and the next as playing key roles in determining the Fed's course of action.
Tomorrow's jobs data is undoubtedly the biggest piece of data during that time. Therefore, if it makes a strong comment for or against hiking rates, financial markets may respond in a big way. That means much bigger potential changes for mortgage rates first thing tomorrow morning.
Loan Originator Perspective
"Bonds stayed within a narrow range again today, and rates were essentially on par with Wednesday's. Looks like it'll take either an unexpectedly strong/weak NFP report tomorrow, or more Fed guidance from their next statement to move rates up/down. There's certainly nothing wrong with current rates, and floating into NFP is inherently risky. Locking removes your risk, and I am recommending that for my clients within 30 days of closing. Whenever the next rate move hits, it may be both large and fast. The question is when that happens, and my crystal ball is broken today." -Ted Rood, Senior Originator
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).