April 14, 2016
It's that time again! Thursday rolls around and Freddie Mac releases its weekly mortgage rate survey. Most major media outlets subsequently craft headlines based on the week-over-week change reported by Freddie. Most have some variation on the same theme: "lowest rates in nearly 3 years." That would be awesome, but it's not exactly true.
Mortgage rates change every day--sometimes multiple times per day. Today, they moved higher for the 2nd time this week, albeit just slightly. We keep track of rates every day, based on lender rate sheets and a few proprietary factors that help us hone in on what the average loan officer is quoting on a top tier scenario.
Freddie's survey relies on responses from humans, and is heavily affected by timing and methodology. For instance, it doesn't count Thursdays or Fridays, and responses tend to be weighted toward Monday and Tuesday specifically. That means there can be several days each year where rates spike far lower or higher than Freddie's numbers would suggest. No surprise there. A more subtle source of confusion is that Freddie's numbers can simply lag a bit. For instance, if rates happen to fall on a Monday, hold steady on a Tuesday, and then rise on a Wednesday and Thursday, the Freddie survey would peg rates lower than they actually are.
So far this week, we've seen rates drop on Monday, hold steady on a Tuesday, and then rise yesterday and today. Sound familiar?
As such, today's rates aren't quite at the lowest levels in nearly 3 years. If we want to bring a few outlying days into the comparison, such as two uncounted Fridays (Feb 11th, 2016 and Jan 30th, 2015), we're nowhere close to 3-year lows. Lenders were almost universally offering conventional 30yr fixed rates of 3.5% on those days, with more than a handful at 3.375%. Today, the majority sits at 3.625%, with barely a handful at 3.5%.
Floating is riskier here than it has been in recent weeks, largely because we've spent a good amount of time mostly holding ground near long term lows without being able to break them.
Loan Originator Perspective
"Bonds continued to trudge along today, and were down slightly mid PM despite a strong 30 year treasury auction. Our rally looks tired, the question is whether it will take a breather and come charging back, or be trampled by lurking bond bears. Time will tell, but for now, all my loans within 30 days of closing are locked. Floating borrowers whose closing is approaching need a lock strategy. If you haven't already defined that with your lender, it's time to do so." -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).