September 9, 2016
Mortgage Rates continued sharply higher today, as financial markets quickly adjust their outlook for global monetary policy (the rate-setting and asset purchases among central banks like the Fed). The move began with yesterday's announcement and press conference from the European Central Bank (ECB). If you remember the analogy of the Federal Reserve "taking away the punchbowl"--an allusion to accommodative monetary policy--the ECB essentially passed on the opportunity to reassure markets about the availability of its own punchbowl.
Long story short, central banks have been juicing financial markets with low interest rates and free money in the form of asset purchases (e.g. "QE" in the US). Financial markets are having a tantrum because they see yesterday as the first clue that the ECB might get more stingy with its allowance. That had a direct effect on bond markets around the world, which in turn influences mortgage rates.
Many borrowers will see quotes on conventional 30yr fixed loans move up an eighth of a point today, or from 3.375% to 3.5% on average. Just as many will see the same rate they would have seen yesterday, but with noticeably higher closing costs (or lower lender credit, as the case may be).
This is the biggest threat we've seen to the low, narrow rate range of the past 2 months. The only safe bet here is to plan for rates to continue to move higher until and unless they prove they can do otherwise.
Loan Originator Perspectives
Interest rates, for the first time in a while, are threatened with a potential major leg up and shift in momentum. Based on the last week of trading, I would say locking today is a losers bet. Although I have been locking almost all my loans with a 3-4 week closing horizon, I am not locking into today's selling, unless the rate has not been affected by today's move (surprisingly this is the case on many loans today). Otherwise, I am waiting to see how this really pans out into next week. Loans with at least 45 days to close have plenty of time to play the game. Enjoy the weekend! -Gus Floropoulos, VP, The Federal Savings Bank
Bonds (and stocks) lost significant ground today, and yields rose to their highest levels since June's Brexit vote. My pipeline is 100% locked, and that's good, as the trend is not our friend. This may end up being a head fake, with markets settling down next week, but I wouldn't plan on that. I'll advise borrowers to lock early in the process, unless they have a large appetite for risk and can qualify without relying on current rates. -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.375 - 3.5%
- FHA/VA - 3.0 - 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).