January 8, 2016
Mortgage rates moved lower today, despite an exceptionally strong jobs report--something that typically sends rates screaming higher. Recently, however, we've seen a disconnection between rates and economic data, and today's jobs report was the ultimate test in that regard. Bottom line, the data was so strong that it would unequivocally have pushed rates higher UNLESS rates had something else very big on their mind.
Indeed, multiple financial markets have something very big on their minds--namely, the significant losses in global stock prices, the ongoing slide in oil prices, and the possibility that the Fed's recent rate hike merely served as the catalyst for the start of a longer term move away from "risk."
When investors move away from risk, they do things like sell stocks and buy bonds. That's happening now, and bond buying makes rates go lower. That's why today's rates are the lowest they've been since early November. Even if this phenomenon continues, it's at high risk of being spooked by false starts in the stock market.
Loan Originator Perspective
"The jobs report was blistering again today adding $292k. Or was it? Equity markets liked it initially and then reversed course just to confuse everyone even more. Fears from China and global growth and low oil prices still seem to be trumping all other factors and reports in 2016. Rates are the best they’ve been in a month. Lock? Float? You’d think that we’d see better gains in pricing on Monday, but as happened in August 2015 the Chinese gov’t potentially could step in with some sort of action to help their markets, so it’s a good time to be leery. If you decide to float, make sure your LO is near the lock button and ask if they can lock on Sunday or early Monday morning should things turn over the weekend. TGIF!" -Jeff Anderson, Loan Officer, Salem Five Mortgage, LLC
"Despite very strong job growth last month, the lack of income growth and continued fears of a global growth slowdown has helped rates post some decent gains today. Only a couple lenders have improved pricing from this morning. Many lenders opened with worse pricing than yesterday, so it appears to me that pricing should be much better now. With it being a Friday, I do not suspect we will get the gains passed to us, so I think floating over the weekend is a safe move." -Victor Burek, Churchill Mortgage
"The environment that influences interest rates and mortgage pricing continues to be complex. Two themes are prevalent right now. The global economic environment increasingly is in turmoil and the Fed is trying to find a way to "normalize" interest rates. How this plays out over the first half of 2016 will be interesting and while it very well may result in even better mortgage rates at some point in the near to medium term the volatility I expect during this time leads me to recommend keeping yourself protected. That means if you're in a position to lock and you're comfortable with the terms, I would lock in and protect myself." -Hugh W. Page, Mortgage Banker, Seacoast Bank
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).