September 4, 2015
Mortgage rates fell to their lowest levels in more than a week today, following the release of August's official employment figures. The previous sentence is absolutely the most interesting thing that could be said about today. In all other ways, it was a total flop compared to its potential. Reason being: the big jobs report (technically "The Employment Situation") was in a position to make a direct comment on the prospects for a Fed rate hike in 2 weeks. If investors thought a hike was more likely, rates could have moved quickly higher, or vice versa.
As it happened, the employment data was tame--perhaps perfectly unoffensive to either sides of the argument about Fed rate hike timing. While the headline job creation was weaker than expected, several components of the report offset that weakness. Previous months were revised to show better job creation, the unemployment rate fell to 5.1, and wages grew slightly faster than expected. In fact, the report was strong enough to cause a modest adjustment in market sentiment on the Fed hike. Fortunately, the Fed Funds rate has a more direct effect on the shortest-term interest rates. That's why things like 2yr Treasury notes were slightly higher today compared to mortgage rates and 10yr Treasuries which were slightly lower.
In terms of conventional 30yr fixed rates, 4.0% continuous to be universally available, but an increasing number of lenders are offering 3.875% on top tier scenarios. As always, there are a few lenders at higher and lower rates, but they are the exception. With rates near recent lows, it's never a bad idea to lock, but with the jobs report out of the way, there is a good window of opportunity for risk-takers to roll the dice on better improvement next week as long as they're ready to cut bait if rates move higher.
Loan Originator Perspective
"After all the build up, NFP was released today, and did nothing to move rates, which stayed in our prior range. Who knows what it will take to change this stagnant pattern, but the longer we stay in it, the larger the eventual move may be. As far as immediate lock/float, secondary desks often price conservatively on 3 day weekends, so if your decision is "do I lock today, or Tuesday?", you might want to wait. Happy Labor Day, all." -Ted Rood, Senior Originator
"Mortgage Rates improved slightly today after the awaited NFP report, that did nothing to move markets drastically. At this point, I believe we have a celing to our new range near 2.18 to 2.2 and at this point we're moving lower in that range. I don't think the prospects for seeing drastic improvement over the next week is terribly likely, but I would certainly float through the holiday weekend and into next week in an attempt to see rates move lower in this new range." -Brent Borcherding, brentborcherding.com
"WOW, bond markets can not make up their mind as to which way to go. This is one of the most muted reactions to a jobs report I have ever seen especially one which missed expectations. The trading channel I have mentioned in the past remains in tact and while it does I have been floating. For that reason I am going to continue to do so." -Manny Gomes, Branch Manager Norcom Mortgage
"Bonds have had a nice reaction to the jobs report today despite it being rather strong. With a 3 day weekend upon us, I would float over the weekend and evaluate pricing on Tuesday. It is commonly thought that lenders hold back on pricing ahead of long weekends." -Bonds have had a nice reaction to the jobs report today despite it being rather strong. With a 3 day weekend upon us, I would float over the weekend and evaluate pricing on Tuesday. It is commonly thought that lenders hold back on pricing ahead of long weekends." -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).