March 16, 2016
Mortgage rates moved lower today, but the amount was not only smaller than underlying market movement suggested, it also varied widely from lender to lender. This likely has a lot to do with lenders' strategies heading into today's volatile events. The lenders who had set rates higher than normal yesterday as part of a defensive strategy were able to drop rates a bit more than other lenders today. But even when we add those bigger moves into the mix, we still didn't see enough improvement to bring contract rates back down to 3.625%. The most prevalently-quoted conventional 30yr fixed rates remains solidly in 3.75%-3.875% on top tier scenarios.
As far as today's Fed news is concerned, its impact had more to do with the changes in the Fed members' forecasts than to the changes in the verbiage of the policy announcement. Specifically, the Fed is now seeing rates rise a lot slower than they did at their December meeting. Back then, they figured the Fed Funds Rate would be around 1.4% by the end of the year. Now they see it closer to 0.8%. The implication is the monetary policy is set to remain easier for longer, and that's a rising tide that lifts all ships, for the most part.
Stocks moved higher along with bond prices today (higher bond prices equate to lower rates), but the best gains were in the shorter duration bonds (think 2yr Treasuries vs 10yr Treasuries and the bonds that back mortgages). Despite the improvement today, it remains to be seen how those longer duration bonds (and mortgage rates!) will fare in the coming days. There's no doubt we're in better shape than we were yesterday, but potentially not out of the woods just yet.
Loan Originator Perspective
"A benign Fed Statement and surprise free press conference by Chairwoman Yellen helped bonds rally today, reassuring investors that the US economy is not poised for immediate inflation. Most lenders issued improved rate sheets during the afternoon, Looks like we finally have cause for increased bond demand, I'm moving to a "cautious float" sentiment for borrowers with some risk tolerance." -Ted Rood, Senior Originator
" The Fed decided to not raise rates today which was a widely expected decision and no cause for celebration. What we may be able to celebrate is that Fed expectations for the total number of rate hikes this year was revised lower to two from four. In addition to that Feb members revised their rate expectations for 2017 and 2018 lower as well. All of this bode well for rates. The Fed seems to be lowering expectations for the pace of rate hikes which many think is a more accurate reflection of current global economic conditions. Mortgage securities immediately improved on the announcement today but it’s too soon to have new rate sheets reflecting any improvement. I think this could be a good time to consider floating, the market may need a little time to digest this news and rates were at their highest level in slightly over a month today." -Jason B. Anker, Vice President- Loan Officer at Salem Five
"A dovish fed has helped bonds to recover much of the recent losses. As is common, secondary departments are being very very slow to pass along the gains. At this point, if you floated into today, you can obviously tolerate some risk. I would continue to float and evaluate pricing tomorrow. This will allow secondary departments the time to see if these gains hold." -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).