July 28, 2016
Mortgage rates fell at the quickest pace in more than a month today as lenders priced-in the market improvements seen after yesterday's Fed Announcement. Even though quite a few lenders offered improvements yesterday afternoon, the so-called "reprices" were conservative compared to improvements implied by trading levels in mortgage-backed-securities (the bonds that most directly affect mortgage rates).
This lag effect between markets and rate sheets has been a fixture in the post-Brexit mortgage rate environment, and it has frequently resulted in today's rate sheets reflecting yesterday's market movement. The only catch is that today's market movement can't backtrack too far in the other direction. Simply put, lenders were prepared to offer lower rates yesterday, but needed confirmation that market improvements would stick around.
That wasn't a given (improvements sticking around) earlier this morning. Bond markets were slightly weaker, implying slightly higher rates, all things being equal. But by the time we account for yesterday's market strength, lenders had plenty of confirmation. In many cases, lenders that had been quoting conventional 30yr fixed rates of 3.5% moved down to 3.375%, although the former is still slightly more prevalent.
When we discussed this possibility yesterday (where floating was a better idea given the fact that lenders didn't adjust for the post-Fed gains), today's improvement is exactly we were looking for. It brings us back to a more neutral stance in terms of lock/float strategy. If you like what you see, there's no folly in locking. Conversely, if you understand the risks and are prepared to lock at a higher rate if the market moves against you, there's more room for improvment as well. One thing to keep in mind in the short term is that the Bank of Japan will make a policy announcement overnight. There's a chance this could cause volatility in rate markets around the world (but also a chance it could do absolutely nothing).
Loan Originator Perspective
Bonds are continuing to add to the gains from yesterday. With the new supply of treasury debt out of the way today, I continue to favor floating. Bonds are making a strong attempt at breaking the recent range to the down side which will hopefully result in lower rates and better lender pricing in the days ahead. -Victor Burek, Open Mortgage
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
- In the biggest of pictures, "global growth concerns" remain the driving force behind the long-term trend toward lower rates
- Amid that trend, periodic corrections toward higher rates can and will happen. These can happen for no apparent reason, or they can be brought on by changes in expectations surrounding central bank policy at home and abroad, as well as geopolitical and systemic risks
- Time horizon and risk tolerance are 2 variables to consider when it comes to locking. If you have plenty of time and don't mind losing some ground, set a limit as to how much higher rates could go before you'd lock to avoid further losses, and then float in the hopes of never seeing that limit.
- In the shorter-term, it's always good to look for lock opportunities after rates have been moving lower or sideways repeatedly, especially if they've since begun to move back up in any sort of consistent way.
- 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).