June 3, 2016
Mortgage rates plummeted today, relatively speaking, fully erasing the damage done 2 weeks ago after the Fed Minutes sent rates higher at the fastest pace in months. Let's continue with that same logic. If rates moved quickly higher 2 weeks ago because the Fed Minutes suggested increased chances of a June hike, it would stand to reason that rates should fall if something happened to decrease the likelihood of a June hike. As it happens, that's exactly what this morning's jobs report did!
In general, the Fed can afford to tune out employment data because employment data has been so reliably strong and steady. But this morning's employment data was SO weak that it could understandably give the Fed pause in rushing to hike rates in June. Of course we've already talked about how overseas events will probably keep the Fed on hold in June anyway, but today's jobs report simply seals the deal (to whatever extent it can be sealed).
The average lender is quoting rates that are an eighth of a point lower than yesterday, although the upfront costs associated with those rates would be slightly higher. In other words, if a lender was quoting 3.75% yesterday, they're likely quoting 3.625% today on the same scenario, but with slightly higher closing costs (or lower lender credit, depending on the scenario). With that improvement, rates are now back in line with 3-week lows.
Loan Originator Perspective
"A terrible number for employment, and just like that we are out of the range and pushing toward lower rates. It is overwhelmingly tempting to lock in here, but we will not see the true improvements to pricing until this leg down is confirmed for a couple days. Between the weak data domestically, and foreign economic uncertainty, I am a believer that we will see this rally continue. Loans on track to close in the next 30 days can consider floating, but I would only consider locking those closing within 2 weeks, and I would wait until Monday-Tuesday to pull the trigger. Have a great weekend!" -Constantine Floropoulos, VP, The Federal Savings Bank
"Weak jobs numbers this morning are propelling a sharp improvement in mortgage pricing. We've been in a range for several months now and we are now at the floor of that range. I would strongly consider locking in and protecting these gains unless we see follow through movement even lower. If you're closing in less than 30 days it's my opinion that locking is prudent and even for longer lock periods I would strongly consider it." Ted Rood, Senior Originator
"Stunner of a payrolls report has sent rates rallying. The current coupon MBS is at its best levels of the year, but I am not seeing the best rate sheets of the year. Lenders will need this level to hold before giving all the gains. Rate sheets did improve overnight, so nothing wrong with locking in the gains, but I like floating over the weekend and re evaluating pricing on Monday." -Victor Burek, Churchill Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 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
- Markets are primarily concerned with the timing of the Fed's second rate hike (after they first hiked in December 2015)
- After bottoming out fairly close to all-time lows in February, rates have been in an increasingly narrow range just above all-time lows
- Fed hike expectations come and go, creating volatility within that low, narrow range. Things won't get serious until we actually break out of that range.
- After fears increased that the Fed would hike in June, the current flavor of the month is that they'll hold off until at least July. This has helped rates move back toward the lower end of that long term range. These have historically been good locking opportunities in 2016 (because rates tend to rise back toward the higher end of the range shortly after hitting the lower end). That trend won't continue forever, but until it is broken, it provides a useful way to know how advantageous current rates are, relative to other recent offerings.
- 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).