September 8, 2015
Mortgage rates moved back up into their recent indecisive range today, foiling a halfhearted attempt to move lower late last week. Much of the indecision is assumed to be due to the Fed's upcoming meeting. Many market participants think the Fed will hike rates for the first time since the Financial Crisis, though just as many think they'll hold off until December at the earliest. Mortgage rates are not directly dictated by the Fed's policy rate, but they tend to move higher during periods where the Fed is raising rates.
Last week's narrow range stood a good chance to be challenged after Friday's jobs report. Because it's the most important piece of economic data on any given month and because we know the Fed is taking economic data into consideration in the 2 weeks leading up to its September meeting, a strong or weak result could certainly have changed some opinions on either side of the debate (to hike or not to hike). As it stands, the data was equivocal enough to change very few minds, and this is now confirmed with rates moving back into the indecisive range.
Even then, we're only talking about micro-adjustments at this point. Most consumers will continue to see the same contract interest rates they've been seeing, and the adjustments will instead be seen in the form of slightly higher or lower closing costs. Most lenders continue to quote conventional 30yr fixed rates of 4.0% on top tier scenarios.
Loan Originator Perspective
"Rate markets reopened today with slight losses. My rate sheets were marginally worse than Friday's, just very small adjustments to loan pricing (rather than actual rates). Since August NFP report didn't impact pricing, looks like all eyes are now on the Fed's upcoming meeting and rate decision. The Fed overnight rate doesn't directly determine mortgage rates, but certainly affects bond markets. A September Fed rate hike (and/or positive economic outlook) could well push rates above their current range. I'm in "lock sooner rather than later" mode, and will continue to be until further notice." -Ted Rood, Senior Originator
"Mortgage bonds continue to trade with no clear decided direction. We are however still in the trading channel we have been in for sometime. Tomorrows 10 year treasury auction may be telling when it comes to locking or floating going forward. keep your loan officer on speed dial tomorrow when the results are released in case you need to take action. " -Manny Gomes, Branch Manager Norcom 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).