January 12, 2016
Mortgage rates moved moderately, but somewhat precipitously lower today. How can the improvement be both moderate and precipitous? A fair question. It was moderate in the sense that the overall change from yesterday's latest rates wasn't that big. It was precipitous not only in the sense that it was somewhat unexpected, but also because there was a fairly abrupt change in market conditions between the morning and afternoon. In fact, many lenders began the day with HIGHER rates than yesterday. Almost all lenders would go on to release positively-revised rate sheets--in some cases, two times.
The abrupt move in financial markets is attributable to several factors, with the most digestible being the drop in oil prices below $30/barrel. Indeed, any time you can draw a connection between the day's top financial market headline and mortgage rate movement, there's little sense in exploring the more esoteric phenomena that are playing a supporting role.
The most aggressive lenders are quoting conventional 30yr fixed rates at 3.875% while the majority is still at 4.0%.
Loan Originator Perspective
"Bonds continued their move to higher prices, lower yields today. As of mid afternoon, well over 30 banks have re issued new rate sheets passing along some of the improvements. If you lender has repriced for the better, you should consider locking in the gains, but I think floating over night is worth risk. As always, only float if you can afford to be wrong!" -Victor Burek, Churchill Mortgage
"Another great rally to add on the recent momentum. We are at a crossroad whereas locking is making sense on most fronts. The trend however is indicating that we may continue to move into better territory. As always time value plays the biggest role in locking today. All loans on the board for the next 10 days should be locked, 15-30 have some time to play but based on the range today's move would constitute locking in. Until we break the lower resistance levels, locking in makes the most sense. " -Constantine Floropoulos, Quontic Bank
"Bond yields broke convincingly lower today, and this move appears to have legs. Global economic concerns continue to alarm markets. Bonds' gains came despite treasury auctions this week and large corporate bond issuance. Rallying DESPITE, instead of because, of economic data, is a bullish sign for bond markets. I'm going into float mode for now. Even though rate sheets improved today, the ones I saw reflected only a portion of MBS' gains, the rest should pass through to borrowers within the next few days." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 4.00%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- In 2015 global interest rates rose unevenly from a long-term lows brought about by the onset of quantitative easing in Europe. European rates moved most (first lower, then higher), but rates in the US, including mortgage rates, are always taking some of their guidance from the global picture.
- Just as European rates were bouncing at all-time lows, the Fed began talking up its plans to hike its policy rate (Fed Funds Rate). While the Fed rate doesn't directly affect mortgages, the two are generally connected in the long run. They become more disconnected when the economy begins to contract (because Fed policy is slower to respond to changes in the economy).
- The Fed finally hiked on December 16th. This implies a constant underlying pressure toward higher interest rates--as long as the economy doesn't begin to contract. Opinions vary greatly as to when we'll see the early signs of the next economic contraction. Some would argue we're already seeing them. This, along with persistently low inflation, has helped rates avoid taking a big hit from the Fed rate hike, though we're still waiting for the first major trend of 2016 to emerge
- 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).