November 10, 2016
Mortgage Rates continued a relentless move higher today, as financial markets continue rapidly adjusting the price of new realities (more on that in a moment). The average 30yr fixed rate quote surged another eighth of a point today (a huge move, relative to the average 24 hours), bringing the 2-day total to 0.25%. That's nearly unheard of in modern economic history.
(NOTE: There are several articles floating around today that say rates have only risen 0.03% week-over-week. These are based on Freddie Mac's weekly survey which has not yet captured the volatility of the past 2 days, due to its sampling methodology).
The last time rates moved a quarter point higher in 2 days was during the throes of the taper tantrum in mid-2013. Incidentally, the following 2 days also saw a quarter point spike, bringing rates a total of 0.5% higher in 4 short days. Those were the worst 4 days for mortgage rates on record.
It's fairly scary to consider, then, that the past 2 days have matched the first 2 days of that 4-day run in 2013. In other words, we're on pace for a repeat. Now, having said that, I think a full-on repeat is unlikely. The adjustment to the price of 2013's realities was a much bigger deal than the current adjustment should be.
So what's all this about the price of new realities? You may have heard the term "repricing of risk" in financial media before. It refers to the rapid introduction or realization of new information that promises to change long-term assumptions about how rates will move. In 2013, the new information was that the era of Fed bond buying was coming to an end. Thus, markets had to reprice the big-picture value of bond markets absent Fed participation.
In the current case, markets are repricing that same big-picture bond market outlook based on a Trump presidency and GOP-controlled congress. The problem is that markets have to GUESS, to a large extent, when it comes to the policies that Trump might enact, and the extent to which the legislative and executive branches will work collaboratively. Unfortunately, most of the best guesses out there are BAD for bonds. Higher spending, lower taxes, protectionist trade policies, and deregulation all add up to inflation, and inflation is the mortal enemy of bonds and low rates. Granted, there are a few other moving pieces here, but this phenomenon of markets guessing at the implications of the election (and repricing the outlook accordingly) is the driving force behind the past 2 days.
Fortunately, this sort of repricing is likely to be shorter-lived than the taper tantrum was in 2013. Unfortunately, that doesn't mean rates will simply come surging back to previous levels. We're definitely looking at an actual repricing of risk here (as opposed to a knee jerk reaction to the election). It would take a new, equally massive motivation for the repricing to occur in a more friendly direction. Until then, a bounce lower isn't out of the question. Indeed, that can often happen as a bit of a corrective move to the initial flood of these "repricing surges," but there's no guarantee it will be very big or that rates couldn't continue higher before it happens.
Loan Originator Perspective
Financial markets continued to digest Donald Trump's shocking victory in Tuesday's election today, and lost further ground. It's times like this when locking early pays huge dividends, glad we've been doing so for quite some time now. I don't know where bond markets will level off, but do know it may not be a while before it happens. I still feel that floating is a high risk, low reward proposition. Float with extreme caution, if you feel you must. -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.75-3.875%
- FHA/VA - 3.5-3.75%
- 15 YEAR FIXED - 3.125%
- 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).