April 12, 2016
Mortgage rates managed to hold steady today despite weakness in underlying bond markets. That means the rates being offered by lenders are substantially similar to yesterday's, but the rates implied by trading levels of mortgage-backed-securities (MBS) would be just a bit higher.
Typically, when MBS weaken enough during the day, lenders will adjust rate sheets accordingly. Indeed, quite a few lenders did just that, but even then, they weren't far off yesterday's levels. By the time the other lenders (the ones who did NOT raise rates in the middle of the day) are factored in, the average is right in line with yesterday. That means conventional 30yr fixed rates of 3.5-3.625% are still the most prevalent quotes on top tier scenarios.
If bond markets (which include MBS) begin tomorrow in similar territory, we should expect a few lenders in that second group to raise rates just slightly. In other words, we're looking at one of those situations where rates should be different, "all things being equal." This is more commonly seen when bond markets improve at the end of the day and lenders wait until the following day to improve rate sheets. The fact that it's happening in reverse is a vote in favor of locking. For those of you following the longer term trends and who are interested in taking bigger risks, today's weakness doesn't derail those dreams, but it is the biggest threat we've seen since at least since the trend began in mid-March.
Loan Originator Perspective
"Bond markets slid today, opening slightly lower before losing ground steadily as the day progressed. While not every lender repriced worse, those who didn't will reflect today's action on tomorrow's rate sheets. We're still within recent ranges, which is encouraging. If treasury yields break 1.81% convincingly (currently at 1.78%), our trend towards lower rates may end. For now, we'll watch warily, and floating borrowers may want to discuss the merits of locking with their originator today, particularly if the possibility of rates rising keeps them awake at night or affects their borrowing ability." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.625%
- FHA/VA - 3.25%
- 15 YEAR FIXED - 2.875 - 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 markets began the new year with rates moving surprisingly lower. Major losses in stocks and oil prices were part of the same trend of investors moving away from risk.
- After bottoming out fairly close to all-time lows in February, rates began to rise somewhat sharply in March as market panic subsided and as the Fed signaled it would probably still hike rates in 2016--just not as quickly as anticipated.
- It remains to be seen whether markets can continue to move in this risk-friendly direction (read: bad for rates, good for stocks). Stocks have yet to break out of a gradual downtrend that began in mid-2015. If they do, it could keep pressure on rates to continue higher.
- We HAD been leaning toward locking since March 1st, which has proved to be a very solid strategy, but began to reconsider starting the 3rd week of the month. We've been more open to the idea of floating since then, as long as you're setting a stop-loss level somewhere overhead, meaning you'd lock to avoid further losses if markets move against you.
- 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).