January 13, 2016
Mortgage rates held their ground today, keeping them near the lowest levels in more than 2 months. There were no major economic reports, but financial markets were highly active nonetheless. In particular, it was the worst day of the year for many major equities indices, including the S&P 500. In fact, it was the worst day of selling since late August. As we've seen on several recent occasions, the selling in stock markets proved beneficial to bond markets. When bonds (a broad term that includes mortgage-backed-securities) improve, interest rates fall.
Stocks and bonds have an assumed relationship that doesn't always hold true. The thesis is that investors buy bonds when they sell stocks and vice versa, thus leading interest rates to move in the same direction as stocks. To be sure, there is never a guarantee that this correlation will hold true on any given day, but chances improve on these days where stocks are really getting hit hard. Today was no exception, but because it began with bond markets in weaker territory (implies higher rates), the improvement seen throughout the day was only enough to get most lenders back in line with yesterday's rates.
Loan Originator Perspective
"The rates rally continues. Tomorrow we have our final auction of the week. Once all that supply is absorbed by the market, it is pretty common for rates to rally further. If your lender has repriced for the better today, you should consider locking in the recent gains especially if closing soon. If you can tolerate the risk, I would continue to float to find out how much further rates might rally. The markets are spooked which is good for rates and bad for stocks." -Victor Burek, Churchill Mortgage
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).