April 20, 2016
Mortgage rates jumped significantly higher today, relative to the almost perfectly flat trend that's been intact for more than a week. We were already a bit cautious due to yesterday's underlying market weakness, but today's move was far swifter than yesterday's imbalances would suggest. Viewed in the context of 10yr Treasury yields--a common yardstick for mortgages--we'd been holding under 1.80% for more than a week. It was one of the key levels traders were watching for a shift in momentum, followed by 1.84%. Less than 2 hours after 10yr yields broke 1.80 this afternoon, they catapulted themselves well over 1.84.
Fortunately (and we're talking about "silver lining" on a dark cloud here...) mortgage-backed-securities tend to undergo smaller versions of the movement seen in 10yr Treasuries, and today was no exception. When we compute the "effective rate" for the average top tier mortgage borrower, we're only 0.04-0.05% higher today compared to a 0.06% increase in 10yr yields. But mortgage rates are generally offered in .125% increments, so many borrowers will find that their scenario is now pricing out at that next 0.125% higher, albeit with a potential decrease in closing costs (or increase in lender credit, depending on the scenario).
In terms of NOTE rates, 3.625% is still a more prevalent quote for top tier conventional 30yr fixed scenarios, but 3.75% is quickly coming back into the running. Even with yesterday's absence of movement, we were already leaning toward locking being the best bet considering the nice run of long-term lows followed by the late-day market weakness. Today's confirmation means we should stick with that instinct until and unless it is refuted by a bounce back toward lower rates. There's some chance that could come as soon as tomorrow, depending on the European Central Bank Announcement, but it could just as easily push rates even higher.
Loan Originator Perspective
"Unfortunately Bonds violated the upper boundary of the range today which is bad for rates. I recommended locking yesterday just in case something like this was to occur and now that it has I would still recommend locking. Bonds will be looking for a new range to bounce around in and it is very possible that the upper end of that boundary will be higher than where we currently sit. I’m going to play defense until we see some strong bond buying activity. " -Jason B. Anker, Vice President- Loan Officer at Salem Five
"It appears investors want to take rates higher. The benchmark 10 year note looks to break support at 1.80 today. As of mid afternoon, only a few lenders have repriced for the worse. If your lender is one that hasn't, it would be wise to consider locking. If you wish to float, you need hope for the 10 year to get back under 1.80." -Victor Burek, Churchill Mortgage
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 now broken out of a downtrend that had been helping rates remain low and we are beginning to see the big picture shift in market sentiment putting upward pressure on rates.
- We had been more open to the idea of floating since the March 16th FOMC Announcement and rates generally fell from there through April 19th. But they're now threatening to move higher again, and locking is a safer bet until such a move can be ruled out.
- 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).