September 20, 2016
Mortgage Rates were slightly higher in most cases today, although there were a few lenders in better shape. This runs counter to movement seen in underlying bond markets, which in slightly better territory on the day. The discrepancy is due to conservative pricing strategies among lenders ahead of tomorrow's Fed Announcement, as well as the timing of yesterday's movement. As we discussed yesterday, bonds weakened in the afternoon, but most lenders kept rates unchanged. That meant we were "owed" a bit of weakness today, and the bond market improvement hasn't been enough to offset that.
The general consensus is that the Fed is not going to hike its policy rate tomorrow, though predictions vary depending upon where you look. If you ask financial markets (via the trading of Fed Funds Futures--actual bets on where rates will be), a hike is very unlikely. Surveys of economists are more evenly split, suggesting that financial markets aren't in the ideal position in the event of a hike.
Hike or no hike, the Fed's statement, press conference, and updated economic projections can all cause significant volatility for longer-term rates like mortgages. Floating is risky here. Even though today's rates are closer to the highest levels of the past 2 months, they're still historically close to all-time lows. The average lender continues quoting 3.5% on top tier 30yr fixed scenarios.
Loan Originator Perspective
Bonds markets posted slight gains today, and my pricing improved marginally before tomorrow's Fed and BOJ announcements. My pipeline is locked, think there's greater risks of losses than potential for gains short term. -Ted Rood, Senior Originator
The Fed meets tomorrow and we await their decision on rate policy. The chances of a rate hike tomorrow are slim, however, the odds are not zero and a since a hike tomorrow would likely throw the markets into a little bit of a frenzy locking up your rate today seems very prudent. High risk floaters may be rewarded but you better make sure your risk tolerance allows for the unexpected disappointment that could follow. Better safe than sorry I think. -Hugh W. Page, Mortgage Banker, SeacoastBank
Today's Best-Execution Rates
- 30YR FIXED - 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).