February 25, 2016
Mortgage rates were slightly higher today, and that leaves them much higher than the long-term lows seen 2 weeks ago. Of course "much" is a relative term, and in this case, it pertains to the sticker shock that a rate shopper would have today versus, say, February 11th, when rates hit 2-year lows. Specifically, it could cost you more than a thousand dollars on a $200k loan to get back to Feb 11th rates. The news is far less dramatic if we focus on the fact that today's rates are only about an eighth of a percentage point higher on average.
Still, an eighth of a point is a big deal if you follow rates closely, looking or waiting for an opportunity to lock. It's an even bigger deal when every major media outlet is saying that rates hit long-term lows TODAY. Again, long term lows were hit on Feb 11th, and Feb 11th is not today!
Read a bit into the methodology of the report behind the glut of news stories proclaiming today's long-term lows and things become clear. Freddie Mac's widely-cited weekly mortgage rate survey only accepts responses from Monday through Wednesday. Most of the folks who are going to respond have done so by Tuesday afternoon. That means the weekly rate figures are really just the "Monday/Tuesday average." And it just so happens that Feb 11th was a Thursday--as far away from the Mon/Tue time frame as you can get (in terms of business days).
Long story short, Freddie's numbers failed to capture the insane rates available at the end of that week (Feb 10th-12th) and thus had room to continue trickling lower over the next 2 weeks. What does it all mean?! Nothing too serious. Just know that if you got a rate quote on one of the several days during the past few weeks with extremely low rates, you will NOT necessarily be able to get the same rate today, even though your buddy sent you an article saying "lowest rates in a year" with today's date on it.
Loan Originator Perspective
"Bonds posted small gains today, although we still haven't approached yesterday's best levels. I love the fact we're holding onto our improvements for the most part. The $20 question is whether we vacillate around these ranges, or markets start panicking and rates break lower. I'd hoping for the latter, but planning on the former. Still locking loans within 30 days of closing, for all but the most "action oriented" borrowers." -Ted Rood, Senior Originator
"The current range in 10 Year yields has allowed us to speculate with very little risk day to day. As Matt Graham has explained we are in a range between 1.64-1.84%, currently at 1.70%, locking in as we get closer to the bottom of that range makes a lot of sense. As we tip closer to the support level of 1.84 it becomes very risky, and potentially hazardous, as interest rates are quite unforgiving on the way up and very slow to be beneficial on the way down. I am a believer that rates will see new historic lows during this current trade, the slower it occurs the better, as the fear is we rush to the floor and take the elevator back up. Lock em if you got em." -Constantine Floropoulos, VP, Quontic Bank
"Mortgage Rates didn't change much today, and I must say that I think the risk of floating is worth it at this time. The markets are likely to test the recent lows, again, here soon and when they do that will be a good time to lock. As always, it's a risky proposition to float so, at a bare minimum, be prepared to lock at any time." -Brent Borcherding, brentborcherding.com
Today's Best-Execution Rates
- 30YR FIXED - 3.625
- FHA/VA - 3.25-3.5%
- 15 YEAR FIXED - 3.00
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- The Fed finally hiked on December 16th, causing fears of rising rates in 2016.
- But global financial markets came into the new year in distress. Now markets aren't even convinced that we'll see another Fed rate hike in 2016. Major stock indices plummeted around the world, and investors sought shelter in the bond market. When investor demand for bonds increases, rates fall.
- So we're left with much lower mortgage rates despite the Fed having just begun its hiking cycle. This paradoxical trend can continue as long as global market turmoil fuels a demand for safer haven investments. A big bounce in oil/stock prices could mean trouble for rates--at least temporarily.
- 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).