April 24, 2017
Mortgage rates moved moderately higher today, and most of the blame goes to the presidential election in France. If you're wondering what European politics have to do with mortgage rates in the US, you're not alone. While it certainly isn't the first thing that comes to mind when thinking about what's motivating rates, its impact was unmistakable today.
To understand the connection, first consider that the EU economy is slightly bigger than that of the US. Then consider France is the third biggest economy in the EU. Germany is the biggest and the UK is the second biggest. On that note, don't forget that the UK is currently in the process of exiting the European Union. Now to bring it all home, simply consider that one of the candidates in the French election (Marine Le Pen) wants France to exit the EU as well.
Investors perceive the departure of large economies from the EU to be risky for growth. They're then more predisposed to sell stocks and buy bonds. When investors buy bonds, rates move lower. In the case of the French election, when Le Pen didn't win, investors could afford to sell some of the bonds they bought as insurance for a potential Le Pen victory. When investors sell bonds, rates move higher. That's about as basic a conversation as we can have regarding the French connection to rates. (For what it's worth, Le Pen is still in the running, but is widely expected to lose the runoff election in early May. The fact that she didn't win outright yesterday is what prompted investors to move out of bonds and into stocks this morning).
In the bigger picture, rates didn't move too terribly much. Most lenders are back at levels seen roughly 2 weeks ago. For many, that means they're still quoting 4.0% on top tier conventional 30yr fixed scenarios, but with higher upfront costs. For others, it's meant a move back up to 4.125%.
Loan Originator Perspective
Traders put some risk back on the table (buying stocks, selling bonds) today as France's election results lowered odds for a French EU departure. While the losses are hardly huge, they do mark our 5th consecutive down day, which is worrisome. Floating borrowers need to be realistic, today may be the best pricing we see until the next global/fiscal/economic drama. I'm advising my unlocked borrowers to take their chips off the table and cash out while they're ahead. -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 4.0-4.125%
- FHA/VA - 3.5 - 3.75%
- 15 YEAR FIXED - 3.25%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- Investors were relatively convinced that the decades-long trend toward lower rates had been permanently reversed after Trump became president, but such a conclusion would require YEARS to truly confirm
- Instead of continuing higher in 2017, rates instead formed a narrow, sideways range, and held inside until April. Investor perceptions are shifting such that fiscal reforms and other policy developments will need to live up to expectations in order to push rates higher. Geopolitical risks would also need to avoid flaring up (more than they already have)
- For the first time since the election, we're in a rate environment where you wouldn't be crazy not to lock at every little opportunity/improvement. Until/unless it's broken, the highest rates of early-2017 mark the ceiling, and we're now waiting to see how much lower we can go from here.
- Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are "effective rates" that take day-to-day changes in upfront costs into consideration.