June 30, 2016
Mortgage rates trickled slightly lower today, technically taking them to another in a string of 3-year lows over the past 2 weeks. The most recent, most noticeable catalyst for the move toward lower rates is the passing of the referendum for the UK to leave the EU (aka "Brexit"). Given the bounce back in stocks since last Friday, it's tempting to conclude that financial markets have "gotten over" their initial apprehension regarding Brexit. But the bond markets that underly mortgage rate movement haven't bounced back in the same way. In fact, they haven't really bounced back at all.
Exploring the underlying reasons for rates remaining near all-time lows despite stocks being closer to all-time highs would be a major undertaking for a simple update on mortgage rates. Suffice it to say that bond markets are looking at the longer-term, bigger picture, and they're seeing the "new normal" that Fed Chair Yellen spoke of 2 weeks ago. Specifically, Yellen said the factors holding rates lower "could be part of a new normal." In this sense, Brexit isn't its own catalyst for rate movement, but rather just another symptom of the same disease of slower global growth and lower inflation.
Lenders continue to offer 3.375% on top tier conventional 30yr fixed quotes though quite a few remain at 3.5%.
Loan Originator Perspective
"We are in a rare realm whereas locking vs floating is almost reversed. If you are in a short timetable to close, floating almost makes more sense here because rates are immediately benefiting from foreign economic and political turbulence. Loans with 45+ day closing timelines (mostly refinances) may need to capture the current markets before they are gone. With today's announcements from the central bank of England of potentially lowering rates, I think it's safe to float at least into tomorrow. The trend favors lower rates, but as most of us know, this can reverse very quickly, and sometimes with no apparent logical reason. Today I would pass on locking." -Constantine Floropoulos, VP, The Federal Savings Bank
"Pricing improved mid morning today, as month end demand boosted bonds. Markets have been already been volatile since Brexit, and the combination of a looming 3-4 day weekend and month end rebalancing exacerbated matters. I finally pulled the trigger and locked my first few loans since Brexit, still feel secondary departments are holding onto a portion of the gains rather than passing them all along to rate sheets. At any rate, locking at best rates in 3+ years is never a bad thing, question is whether they'll get better." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.375-3.5%
- FHA/VA - 3.25%
- 15 YEAR FIXED - 2.75%
- 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.
- Brexit happened and rates rejoiced. Lock if you like what you see. The longer term trend remains positive regardless, but periodic corrections toward higher rates continue to be a risk.
- 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).