May 11, 2016
Mortgage rates were very slightly higher today. That's counterintuitive because bond markets were slightly stronger, and that almost always coincides with rates moving lower. All of this requires a caveat though: we're talking about very small movements. In fact, we're not even really dealing with a change in the contract interest rates themselves--merely the upfront costs (or credit) associated with those rates. In other words, you'd almost certainly be quoted the same contract rate today vs yesterday, but with microscopically higher closing costs (or a lower lender credit). Most lenders are in the 3.5-3.625% range on conventional 30yr fixed quotes for top tier scenario--in line with 3 year lows.
While it is true that rates can exhibit this "sideways at the lows" behavior before continuing to even lower levels, it's just as much of a risk that rates are running into a bit of a floor here. As such, locking is an easy call here, given that rates are at 3-year lows. Risk tolerant borrowers would also be justified in waiting to see how things shake out (i.e. waiting to lock) as long as they accept the possibility of being forced to lock at a slightly higher rate if markets move against them. Yes, that sounds obvious, but the point is to decide on a limit of rate movement before accepting the defeat. For instance, if my rate is x today, I will lock if rates move to x+.125%.
Loan Originator Perspective
"There is a saying, lock the low, float the highs. We are currently at the lows of the recent range which suggests you should lock here. However, tomorrow we have our final auction for the week and it is common for us to rally once the new supply has been absorbed. That said, I would float overnight and see what happens after tomorrows auction as long as you can tolerate the risk and afford to be wrong." -Victor Burek, Churchill Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.5 - 3.625%
- 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 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 have seen only brief episodes of volatility in a low, narrow range.
- The Fed's most recent announcement at the end of April reinforced their cautious approach to rate hikes. The last time that happened, stocks cheered, but this time they've been moving lower. Bond markets like that, and they'll continue to like it until stocks prove they can break back above 2015 highs.
- Even though the broader backdrop has taken a positive turn for rates, there are still tactical opportunities to lock. In general, we look for any prolonged moves lower (i.e. 10 days in a row without moving higher) or any major low-rate milestones (i.e. 3-year lows).
- 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).