April 5, 2017
Mortgage rates were noticeably higher to begin the day, but most lenders offered mid-day improvements after the release of the hotly-anticipated Fed Minutes (from the March 14-15 meeting). For those that don't necessarily follow every little movement in the bond market, it's ironic that tend to move down just after the Fed releases big news that should imply higher rates.
For example, in the case of the past 3 Fed rate hikes, day-to-day mortgage rates had been moving higher leading up to the hike and then generally moved lower after the hike was announced. If you've heard the phrase "buy the rumor, sell the news," that's what this paradoxical movement is all about. Market participants are so tuned-in to what will PROBABLY happen that they've fully accounted for what ACTUALLY happens. Widespread consensus on Fed rate hikes results in widespread efforts to push rates higher. More often than not, markets overshoot the goal and rates fall after the hike is confirmed.
Today was similar, although it wasn't about rate hikes. Instead, today's hot topic was the Fed's balance sheet. For several months, various Fed speakers have suggested that the Fed will eventually stop reinvesting the payments it receives on its existing balance sheet (i.e. the Fed bought a lot of MBS/Treasuries and it earns monthly payments on those loans that it turns around and puts right back into MBS/Treasuries). The net effect would be higher rates.
Expectations for this "reinvestment tapering" have already contributed to higher rates in 2017. When today's Minutes confirmed the Fed officially discussed it, nothing about that discussion was any more sinister than what markets had already accounted for. As such, rates fell in the afternoon following the Fed Minutes.
The net effect wasn't extreme, however, as the average lender is fairly well in-line with yesterday's rate quotes. 4.125% remains the most prevalent conventional 30yr fixed quote on top tier scenarios.
Loan Originator Perspective
Today's Fed Minutes revealed members discussed cutting the Fed's balance sheet (which includes MBS) later this year, a topic that hadn't previously been noted. While only a potential, future policy change, bond markets still viewed the news as a negative, and markets sold off in afternoon trading. Looks like our downward rate momentum has stopped for the moment. With Friday's NFP March jobs report looming and ADP already predicting strong job growth, it's time to get defensive. Folks closing within 30 days need to get locked, if they aren't already. -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 4.125%
- FHA/VA - 3.75-4.00%
- 15 YEAR FIXED - 3.375-3.5%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- Some investors are increasingly worried/convinced that the decades-long trend toward lower rates has been permanently reversed, but such a conclusion would require YEARS to truly confirm
- Still, it would take something very big and unexpected for rates to make a big, sustained push back toward pre-election levels. Even then, it would take time to confirm such a shift.
- With fiscal and monetary policy paths both clearly putting pressure on rates, at least one of those would need to make a noticeable change before anything but a cautious, lock-biased approach makes sense as a baseline strategy. Floating should only be considered as a tactical opportunity to capitalize on temporary corrections.
- 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.