November 30, 2016
Mortgage rates rose moderately today, bringing them roughly back in line with Monday's levels. For the record, that leaves us in slightly better shape than last week, which saw the highest rates in more than a year. Today's bond market weakness was driven primarily by the much-anticipated OPEC deal. What is the OPEC deal and why is it impacting mortgage rates?
The OPEC deal essentially serves as an agreement among OPEC countries to limit oil production. The goal is to push oil prices higher. Higher oil prices imply higher inflation, and inflation is an enemy to low interest rates. With this logic, it would be easy to assume that rates would move higher any time oil prices moved higher, but that's definitely not the case. Today's OPEC deal did more damage by influencing long-term inflation fears. After all, if OPEC countries are willing to come to agreements like this, bond markets (which drive mortgage rates) need to account for the threat of general upward pressure on prices (due to higher fuel costs), all other things being equal.
This inflation narrative might not have been as hot a topic were it not for the fact that longer-term inflation fears are already in the spotlight due to the Trump administration's expected policy path. In other words, markets are already feeling defensive about inflation, so anything that adds to the risk has the power to move markets more than it otherwise might.
Given the amount of weakness in bond markets, lenders didn't move mortgage rates too terribly much. Yes, today's rates are indeed higher than yesterday's, but not by as much as the market movement suggests. Most lenders managed to hang on to the 4.0-4.125% range on top tier conventional 30yr fixed rate quotes. In general, locking has been the only safe bet since the election, but risk takers can continue to use last week's highs as a stop-loss (i.e. if rates make it back to those highs, it's your cue to lock and avoid further losses).
Loan Originator Perspective
The float boat is quickly sinking. Economic data was not mortgage rate friendly and quickly sent rates testing the recent highs. The momentum has certainly been against us and today is just another reminder. Tomorrow and Friday bring more key economic data and certainly can push rates above our recent resistance level of 2.42% on the 10 YR Treasury. All new applications should lock for 45-60 days due to the volatility and the upcoming holiday lag. For loans caught in the Trump-nado, today is a bad sign, it may be time to lock and move on, I will be patient to see if the support level holds into Friday's employment report. -Gus Floropoulos, VP, The Federal Savings Bank
Today's Best-Execution Rates
- 30YR FIXED - 4.125%
- 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).