September 9, 2015
Mortgage rates ended the day in just slightly stronger territory compared to yesterday's latest levels. This definitely wasn't the case if you looked at rates almost any time before the last few hours of the day. Morning rate sheets were slightly higher as domestic bond markets were under heavy supply pressure from both Treasuries and the Corporate Bond market. Mortgage rates are affected because they're a somewhat interconnected cog in the broad "fixed income" market segment.
The simplest way to think about today's event would be to say that a lot of debt was being sold. The US Treasury was selling debt and corporations were selling debt. This means investors were offering cash in exchange for a fixed stream of payments over time. The more debt offered, the more it had to be discounted to earn investors' dollars. In other words, the PRICE of the debt was falling, and that means borrowers (in this case, Treasury and Corporations) were paying slightly more. The broader currents that pushed rates up for Treasury and corporations also spill over to other parts of the bond market, thus making for a difficult morning for mortgages.
The afternoon brought relief as markets worked through the supply. The mortgage market was the least damaged by the supply when rates were on the way up, so they had the smallest amount of ground to cover on the way back down. Ultimately, that allowed lenders to bring rates back below yesterday's latest levels, even if only slightly. Most continue to quote conventional 30yr fixed rates of 4.0% on top tier scenarios.
Loan Originator Perspective
"Following a pretty good auction of 10 year notes today, bonds have managed to regain all of the losses from yesterday and this morning. Some lenders have improved pricing, but most will wait to pass along the gains to see if they hold. Tomorrow we have our final auction of the week, and it isn't uncommon for bonds to rally once the new supply is out of the way. With all that said, I like floating overnight." -Victor Burek, Churchill Mortgage
"Bonds caught a mini-rally this afternoon after opening lower, and a number of lenders improved their rate sheets. The 10 year treasury auction saw good demand, providing the fuel for our gains. Floating borrowers may see some slightly higher credits, but shouldn't expect their actual rates to drop, we're nowhere near a rally of that magnitude. I still see no shame in locking up pricing early, especially for clients within 30 days of closing." -Ted Rood, Senior Originator
"All eyes are on the Fed until next week so it looks like we'll probably continue the trend of the last 2 1/2 weeks. That is, we'll bounce around in a tight range without venturing too far higher or lower. For the near term (until next week) waiting to lock should be fine as long as you're closing is more than 15 days away. If it's not, I would be pulling the trigger now. For longer term locks a wait and see position should be fine but be ready in case of unexpected volatility triggered by some unforeseen event. It happens!" -Hugh W. Page, Mortgage Banker, SeacoastBank
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).