March 10, 2016
Mortgage rates continued higher today, making it back to levels last seen in late January. Today's key event was a policy announcement from the European Central Bank (ECB) and the accompanying press conference with its president Mario Draghi. While the ECB's announcement exceeded market expectations (rate cuts and bond-buying), Draghi said that additional rate cuts were unlikely. This is what markets chose to focus on.
Stocks fell and rates moved higher as a result. Reason being: when a big central bank is providing accommodation to the global economy, it's essentially pumping money into the financial system. Both stocks and bonds like that money (it helps stocks rise and rates fall). If one of the central bank chiefs says that some form of further accommodation is unlikely, it's tantamount to parents pointing out the limit of their kids' allowance. If the kids are as petulant as global financial markets, they might throw a little fit about that. Today is that simple.
In terms of nuts and bolts for mortgage rates, lenders are now well into quoting 3.75% on conventional 30yr fixed loans, with an increasing number moving up to 3.875% today. It's too soon to tell if this little market tantrum will blow over, but that's at moot point. It continues to be the case that a defensive strategy (read: favor locking vs floating) makes more sense until we can rule out being in the midst of a big-picture bounce toward higher rates.
Loan Originator Perspective
"Mortgage rates have started to enter into a realm whereas we need to be concerned about the next move. Rates pushed through the recent support of 1.84, and seemingly are forming a base of resistance at those same levels. Optimism is not a strategy, nor is fear, therefore my advice is to stay put over the next few trading sessions and let the trade unwind as data comes back into the picture next week. As always, locking is the safe bet, if you are happy with your rate you should always lock it in." -Constantine Floropoulos, VP, Quontic Bank
""The trend is our friend, until it isn't anymore". Guess what? The trend is definitely not our friend now, and in fact may be our enemy soon. MBS prices and Treasury yields are now both at their 50 day moving averages, for the first time since early January. Not much more to say, other than float at your own risk. I'd much rather buy a few days' lock extensions than float at times like these, risking my clients' targeted rates." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.75-3.875%
- 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.
- We were 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 of March 1st, stock markets look like they're at least attempting to get back toward higher levels. Mortgage rates have been pressured higher accordingly. While we're well off the lows seen in early February, we're still in very low territory historically--low enough that it wouldn't make sense to second-guess a decision to lock, even though there's still a possibility that the longer-term trend toward lower rates could continue.
- 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).