October 31, 2016
Mortgage Rates moved sideways to slightly lower for the 2nd day in a row, after hitting the highest levels in 5 months on Thursday. While the positive progress is better than a sharp stick in the eye, it nonetheless leaves us right in line with highs for all practical purposes. In fact, virtually all lenders are putting out quotes today that are indistinguishable from Thursday's for most prospective borrowers. The most prevalently-quoted conventional 30yr fixed rate remains 3.625% on top tier scenarios, with a handful of the most aggressive lenders at 3.5%.
The remainder of the week brings several flashpoints for market volatility, with Wednesday's Fed announcement being the center of attention. The Fed is not expected to announce a rate hike this week (though it's not impossible, by any means). Rather, the baseline assumption is that the Fed will use this meeting much like they used the 2nd to last meeting of 2015 to telegraph a hike in the final meeting of the year in December.
When you see or hear a reference to the Fed hiking or cutting "rates," it doesn't refer to all interest rates--merely the Fed Funds Rate (the Fed's desired, or "target" rate for overnight borrowing/lending among the largest banks, which it achieves by adjusting several policy variables). In other words, mortgage lenders are by no means forced to instantly raise rates if the Fed declares that it will now be targeting a higher Fed Funds Rate. Moreover, mortgage rates are more closely-related to longer-term rates, such as 10yr Treasury yields (i.e. mortgage rates tend to move in the same direction as 10yr Treasury yields, even if short term interest rates are moving in the opposite direction).
Now for the tricky part. Even though mortgage rates don't follow the Fed Funds Rate, they can absolutely follow the EXPECTATIONS that precede changes in the Fed Funds Rate. As such, if the Fed were indeed to telegraph a December rate hike, mortgage rates could face additional upward pressure. But if this Wednesday's Fed announcement doesn't contain the sort of clue that many investors expect, mortgage rates have some room to move slightly lower.
Perspective is important when discussing "lower vs higher" rates at the moment. In general, lenders will hesitate to aggressively push rates lower with the looming possibility of a Fed rate hike in December (among other things). That means there is decreased reward for the risk of floating. If you're OK with the smaller victory and accept the risk that rates continue to move higher, it wouldn't be unreasonable to float. If you do, make a gameplan with your originator and be ready to lock immediately if rates react unfavorably to Wednesday's Fed.
Loan Originator Perspective
This week promises chills, thrills, and perhaps a few scares, and not just because of Halloween. Friday marks the release of October's NFP jobs report, and between that, election drama, and a resoundingly bearish bond market, it's vital to NOT take pricing for granted. My pipeline is locked, except for some files closing 45+ days out. Float with great caution, or (better yet) don't float at all. -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.625%
- FHA/VA - 3.25-3.5%
- 15 YEAR FIXED - 2.875%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates have generally been trending higher since hitting all-time lows in early July
- Clearly-defined uptrends provide higher-than-average motivation to lock
- Risk-takers can try to time the dips in rates that may occur during that broader uptrend, but the reward for good timing generally isn't worth the risk in these situations.
- We'd need to see a sustained push back toward lower rates (something that lasts more than 1-3 days) before anything less than a cautious, lock-biased approach makes sense for all but the most risk-tolerant borrowers.
- 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).