January 20, 2016
Mortgage rates fell today, bringing them back in line with the lowest levels in more than 2 months and very near the best levels since late April 2015. The surprisingly strong performance so far in 2016 is primarily due to a much weaker performance in risk assets like stocks and oil prices. As investors sell stocks and oil, they are buying safer-haven assets like Treasuries and mortgage-backed-securities (MBS), which have much less price volatility than stocks. When investor demand increases for MBS, mortgage rates fall.
The average lender is easily back into the "high 3's" when it comes to conventional 30yr fixed quotes for top tier scenarios. The only question is whether that means 3.75% or 3.875%. With today's improvements, quite a few lenders moved back down to to 3.75%. They don't necessarily represent a majority just yet, but it's getting to be a closer call.
Naturally, everyone wants to know if rates can continue to fall. Everyone wanted to know this last week as well. Clearly, rates can continue to fall, but no one knows for sure if they will. Lock if you like the rate you're looking at. If you hold out for further improvements, set yourself a limit as to how much you'd be willing to lose before being forced to lock and make the necessary game-plan with your loan officer.
Loan Originator Perspective
"Stocks slumped further today, and funds flowed into bonds. Mortgage pricing improved around 25 bps, a nice day for us. The benchmark 10 year US Treasury note is now yielding just under 2%, and the longer we hold at/below those levels, the better the outlook for rates. That being said, if equities launch a 3% rally, pricing will suffer. Those within 15 days of closing should certainly lock, those further out need to discuss their risk tolerance and pricing options with their loan originator to make an informed decision." -Ted Rood, Senior Originator
"If there was ever a good day to lock today looks to be it. I may be putting my foot in my mouth by saying this but I do not see rates improving further in the next 30 days. Longer term I do see rates improving but if you are closing in 30 days or less lock in and take all risk off the table." -Manny Gomes, Branch Manager, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.75 - 3.875%
- FHA/VA - 3.5%
- 15 YEAR FIXED - 3.125%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- The Fed finally hiked on December 16th. The baseline implication would be steady pressure toward higher interest rates, but there's been "a catch" so far in 2016
- Global financial markets have come into the new year in distress. Major stock indices are plummeting around the world, and investors are seeking shelter in the bond market. When investor demand for bonds increases, rates fall.
- So we're left with a move toward the lowest mortgage rates in 7 months despite the Fed having just begun its hiking cycle. This paradoxical trend can continue as long as global risk markets continue selling-off. The big risk is for a big bounce if global risk markets happen to find their footing.
- 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).