Mortgage Rates Little-Changed. Volatility Ahead
March 15, 2016
Mortgage rates were essentially unchanged today, despite implied weakness in underlying bond markets. In other words, rates should have moved a bit higher today if they were paying strict attention to the mortgage-backed-securities prices that typically set the tone. For what it's worth, this has been fairly common over the past few weeks, and at times it can seem like lenders are reacting to market movements from the previous business day.
Tomorrow's FOMC Announcement is an event that not only begs an immediate reaction, but could also kick off a sustained move higher or lower. Most market participants do not expect the Fed to raise rates at this meeting, but if last October's Fed Announcement was any indication, the Fed may use this opportunity to clearly telegraph its next move. In addition to the announcement itself, investors are anxious to see how the Fed's economic projections have evolved in light of the market volatility seen during the 1st quarter. There's no question that the average FOMC member will see fewer rate hikes in 2016, but if the Fed's consensus is significantly different than the market consensus (which currently sees between 1 and 2 rate hikes by the end of the year), the market reaction will be bigger.
Unfortunately, there's no way to know ahead of time which way markets will move in response to certain Fed outcomes. After all, the Fed hiked its policy rate in December and mortgage rates moved lower! The increase in potential movement combined with the recently negative trend means the safest strategy is to remain defensive (i.e. guarding against rates moving higher).
Loan Originator Perspective
"Loan pricing worsened again, today, on "Fed Statement/Press Conference Eve". It's not unusual to see defensive posturing before significant events such as jobs reports or Fed Statements, but rates have already risen about .25% just since the end of February. It's going to take some discouraging economic news or global discord to turn our rising rate tide. For now, I'm back to locking at application, the trend is not our friend." -Ted Rood, Senior Originator
"With the Fed on tap tomorrow, floating is very risky. There are many variables at play, do they raise, are the bullish, are they dovish....no telling how the market is going to react. Only those with the highest level of risk tolerance should consider floating. I think it is wisest to lock up today." -Victor Burek, Churchill Mortgage
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).