May 18, 2016
Mortgage rates skyrocketed today, relative to their recent average daily movement, following the release of the Minutes from the most recent Fed meeting. At the time of the Fed's last policy announcement at the end of April, financial markets were nervous that the Fed would more firmly indicate their intention to hike at the June meeting. When that announcement had no such clues, markets breathed a sigh of relief and rates moved steadily lower in the following weeks.
But over the past 2 days, there's been a sudden rush of similar anxiety. What if we were too quick to assume the Fed wasn't interested in hiking simply because they didn't reference it in the same way they did before the last hike? The anxiety was reinforced by comments from several Fed speakers yesterday, and bond markets (which dictate mortgage rates) entered into a bit of a panicked move toward higher rates.
As we discussed yesterday, the panic in markets did NOT filter through to lender rate sheets as of yesterday afternoon, leaving us at more risk that today's rates would be higher. Not only did today's rates begin in higher territory, but almost every lender revised rates even higher after the Fed Minutes (which all but confirmed the aforementioned anxiety).
Long story short, the Fed is leaving it's June rate hike options open. The Fed rate doesn't directly dictate mortgage rates, but mortgage rates do tend to reflect future expectations of the Fed's rate hike path. Today ended up being the biggest single day jump in rates since early February. Almost any lender will be quoting conventional 30yr fixed rates an eighth of a point higher than they were yesterday, with the most prevalent quote moving back up to 3.75% for the first time this month.
Loan Originator Perspective
"Following the FED minutes I was forced to lock a few loans whereas the margin differential was too close to risk. Loans closing inside of 21 days may need to consider locking before reprices hit as it will take some time to sort out the current move higher. If you are not time restrained or too sensitive to the current rate, floating may pan out over time. I believe we are yet to see the lows of the current interest rate market, but again, it's more driven on time tables than anything else." -Constantine Floropoulos, VP, The Federal Savings Bank
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 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. This helped rates improved through mid May
- Now some investors are getting concerned that the Fed may be more prepared to hike rates than markets currently expect. This could create volatility and pressure toward higher rates heading into the June Fed meeting, thus favoring locking vs floating.
- 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).