March 9, 2016
Mortgage rates bounced higher today, moving all the way back to the highest levels since early February. While that sounds quite dramatic, the same could have been said for the day before yesterday, not to mention the fact that the overall range remains quite narrow in the bigger picture. The average lender continues quoting conventional 30yr fixed rates of 3.75% on top tier scenarios. Several of the more aggressive lenders joined that crowd after having inched down to 3.625% yesterday.
With today's market movements, we can now confirm that yesterday was indeed just an opportunity for investors to close out trading positions ahead of tomorrow's important announcement from the European Central Bank (ECB). In other words, mortgage rates are ultimately determined by bond markets. Bond traders had open bets on rates moving higher and took those bets off the table yesterday. That had the side-effect of pushing rates lower temporarily, but it left bonds (and thus, rates) open to suggestion. The lock/float environment still favors a defensive strategy, largely because of the unknown reaction to tomorrow's ECB news.
Loan Originator Perspective
"Bonds lost some ground today but appear to be waiting to see what the ECB does tomorrow. Doesn’t seem to be a clear consensus on what Mario Draghi will say tomorrow so the float or not to float question is definitely a gamble. The trend has not been our friend since mid-February. Not floating today is rolling the dice that Super Mario comes out with a bond friendly message tomorrow morning. Remember hopium isn’t always the best strategy. Especially if you’re closing soon. Rates are still good. I’d still lean towards locking if closing within 30 days." -Jeff Anderson, Loan Officer, Salem Five Mortgage, LLC
"Our "potential" rally yesterday is now in the rear view mirror. Pricing worsened this morning, and a tepid Treasury auction compounded the losses. Rates are now solidly at their highest since late January. It's times like these that remind originators and borrowers not to get greedy by floating locks too long. I'm in "lock early" mode, the trend is no longer our friend." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.75%
- 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).