December 1, 2016
Mortgage rates spiked abruptly today, bringing them to the highest levels in well over 2 years. The average lender is now quoting conventional 30yr fixed rates of 4.25% on top tier scenarios with more than a few already up to 4.375%. You'd have to go back to the summer of 2014 to see a similar mortgage rate landscape.
(NOTE: Freddie Mac's widely-cited primary mortgage market survey, released today, showed a 0.05% increase week-over-week. That increase is actually fairly close to the true week-over-week increase, but only if you're using last Wednesday or Friday as your baseline. Freddie's baseline was Mon/Tue--shorter than normal due to the holiday week. Additionally, Freddie's survey doesn't capture today's rate spike, which was roughly 0.10%. The bottom line is that many borrowers will be seeing rates that are .125-0.25% higher this week versus the beginning of last week. By my calculations, if rates didn't change at all in the coming week, Freddie's next survey would likely be 0.08% higher.)
The situation is all the more troubling considering the fact that rates weren't too far above all-time lows less than a month ago. The pace of losses has only been seen 2 other times in the last 30 years (in 1987 and 1996). For the record, 2013's taper tantrum resulted in a bigger rate spike than we're seeing currently, but it took more than twice as long to play out. There were no 4-week periods of time in 2013 that compare to rise in rates seen over the past 4 weeks. For those who recall the vicious rate spike at the end of 2010, the current pace is just a bit faster.
The higher rates go--the more the boundaries of past precedent are stretched, the more likely we are to see a rebound. The catch is that there's no way to know when that rebound will happen until it's underway. That makes floating very dangerous, and locking potentially very frustrating (because it's clearly the safer bet since the election, but increasingly runs the risk of being ill-timed).
Loan Originator Perspective
Some people may think its funny, but they are terribly wrong. When borrowing costs move higher, this much, this fast, it is toxic to many areas of the economy. Unfortunately it takes a while to surface. Locking in is the only option at this time. Sure, this can all change, but for now, the only play is defense. Take what you can and move along. It's too bad that mortgage rates for average families buying a home are so volatile....really shouldn't be this way for them. -Gus Floropoulos, VP, The Federal Savings Bank
Bonds continued to wilt under strong selling pressure today, and yields rose past previous support levels. It's time to concede that rates are rising, it's no longer a question of this just being a short term phenomenon. I'll continue locking as soon as I have the necessary info, every loan in process is locked, and I'm sure glad for that! -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 4.25%
- FHA/VA - 4.0%
- 15 YEAR FIXED - 3.375-4.5%
- 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).