June 20, 2016
Mortgage rates continued higher today, and at a quicker pace than the modest increase seen at the end of last week. Financial markets are undergoing a change of heart regarding their approach to Brexit (market shorthand for a "British exit" from the European Union). Brexit fears had helped drive interest rates to long-term lows in the US and to all-time lows in Europe. Investors don't really know what to expect in the event the U.K. actually leaves the EU, and one of the ways to play that uncertainty is to buy safer-haven assets like bonds. Better the buying demand for bonds means lower interest rates.
As of late last week, the bond-buying frenzy was already beginning to change. Over the weekend, polls came out that suggested an increased likelihood that the U.K. would remain in the EU. Financial markets reacted accordingly by continuing to sell the bonds that were so fashionable at the beginning of last week.
The bonds that underlie mortgage rates are somewhat more insulated from this global market drama, but were still noticeably affected (meaning rates moved higher). The most prevalent conventional 30yr fixed rate quotes are now back into a relatively balanced range between 3.5% and 3.625% on top tier scenarios.
Bottom line: the trend toward lower rates has shifted as Brexit-related risks peaked. It's safer to assume rates will go higher until we see a definitive shift in this new trend. With the British referendum vote happening on Thursday, volatility is all but guaranteed.
Loan Originator Perspective
"For those who didn't take heed and lock last week, you are faced with the reality of markets and the quick changes therein. Today's pricing is still very attractive and locking in is still the recommendation. Traditionally we would wait and see how the trade plays out, but we are still in a great price point to lock. Floating into this volatility is too aggressive with too many variables that can play out against us. Over the next few days this may change, but for today, locking in makes the most sense." -Constantine Floropoulos, VP, The Federal Savings Bank
"World economic markets appear to be calming down (for the moment) after last week's Brexit panic. Whether Britain leaves the EU or not, rates are creeping up. The rise is completely logical, last Thursday's drop put us significantly under well established prior resistance levels. For now, I'm back to locking earlier in the process, unless a well informed borrower wants to roll the dice." -Ted Rood, Senior Originator
"Our recent gains from last week were due to the upcoming Brexit vote. As the polls evolved from a stay vote to a leave vote, bonds around the world rallied. Since that time, the polls have ever so slightly started to move back toward a stay vote causing bonds to sell off. With the election in a few days, I think it would be very wise to consider locking here. At least short term, we need a vote in favor of Britain leaving the EU for rates to move back lower." -Victor Burek, Churchill Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.5% - 3.625%
- FHA/VA - 3.25%-3.5%
- 15 YEAR FIXED - 2.75-2.875%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- Markets had been primarily concerned with the timing of the Fed's second rate hike (after they first hiked in December 2015)
- The possibility that the U.K. would vote to exit the European Union (Brexit) has since taken over as the biggest flashpoint for markets.
- The Fed freely admits it didn't hike in June because of this and because it wants to be sure that jobs numbers aren't taking a bigger turn for the worse. Mortgage rates moved farther into 3-year lows as a result.
- If the UK votes to remain in the EU and if the next jobs report is strong, watch out. Between now and then, volatility will be elevated and improvements in rates will be slow in coming (which is always the case when we're at long-term lows). These have historically been good opportunities to lock, despite the longer term momentum remaining positive.
- 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).