November 23, 2016
Mortgage rates move abruptly higher today, bringing the average lender very close to the highest levels in more than 2 years. As it stands, rates are officially at 17-month highs, with June 26th, 2015 being the last day where rates were any higher. Prior to that, we'd have to go back to September 2014 to see anything higher. To give you an idea of how close we are to that dubious distinction, there are already some lenders whose rates are worse than June 2015's. It's only when we look at the broader average that we're "not quite there yet."
Labels and statistics aside, rates are qualitatively in bad shape--relative to where they had been, at least. Several lenders who had been quoting 4.125% on top tier conventional 30yr fixed scenarios are now up to 4.25%. More aggressive lenders that had been at 4.0% are generally now up to 4.125%. More important than the outright level of rates (which many would argue is historically low) is the speed with which they've risen. In just 3 short weeks, average rates are up more than half a point now--a feat seldom duplicated in the history of mortgage rates.
Rapidly rising rates cause all sorts of problems. On the subtle side, volatility makes it more expensive for lenders to guarantee locked rates. That expense is passed on to consumers in the form of slightly higher rates across the board. On a more obvious note, rapidly rising rates make for frustrated mortgage borrowers and generally elevated levels of stress throughout the industry. Matters can be made worse by overreliance on survey-based mortgage rate data on the part of some media outlets. For instance, Freddie Mac's weekly mortgage rate survey is incredibly accurate over time, but can significantly lag sharper day to day movements. This was more of an issue 2 weeks ago, when the weekly survey didn't reflect the initial post-election move, but even in the current week, it's good to keep in mind that Freddie's survey was concluded yesterday and is thus unable to reflect today's sharper movement.
With the incoming administration's policies driving a large portion of upward rate momentum, mortgage rates will be hard-pressed to make significant improvements any time soon. Rates can move for other reasons, to be sure, but it would take something big and unexpected for rates to gain enough ground to write home about.
For more on how and why the election affected mortgage rates, here are the relevant recaps:
(11/9/2016) Worst Day For Mortgage Rates in Over 3 Years
(11/10/2016) Mortgage Rate Pain on Par With Taper Tantrum
(11/14/2016) Mortgage Rates Skyrocket to 4%. New Normal?
Loan Originator Perspective
Another day in paradise, NOT! Bond markets continued selling off today causing more stress and panic for all involved. For new applications do yourselves a favor and lock for 45-60 days. The reason for the longer lock period is due to the holiday lag in December. Loans that are floating through the Trump-phenomenon that has occurred in financial markets, we are currently looking at 2.40-2.42 on the 10 YR Treasury as a stop loss. The sell-off has caught us all by surprise, sometimes you have to lick your wounds and move on. -Gus Floropoulos, VP, The Federal Savings Bank
Rates continued to march higher today following much better than expected economic data. However, it is Wednesday before basically a 4 day holiday. Following the early morning losses, lenders did hammer rate sheets, so I like floating here until Monday. -Victor Burek, Churchill Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.125%-4.25%
- FHA/VA - 3.75-4.0%
- 15 YEAR FIXED - 3.375%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates had been trending higher since hitting all-time lows in early July, and exploded higher following the presidential election
- Some investors are increasingly worried/convinced that the decades-long trend toward lower rates has been permanently reversed, but such a conclusion would require YEARS to truly confirm
- With the incoming administration's policies driving a large portion of upward rate momentum, mortgage rates will be hard-pressed to make significant improvements until after Trump takes office. Rates can move for other reasons, but it would take something big and unexpected for rates to move appreciably lower.
- We'd need to see a sustained push back toward lower rates (something that lasts more than 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).