October 18, 2018
Mortgage rates recovered most of yesterday's losses today, following turmoil in European financial markets. What does Europe have to do with rates in the US? A lot, actually. In fact, Europe deserves credit for most of the glacial move toward lower rates seen from early 2014 through mid-2016, and was a key ingredient of the low rate environment in 2011-2012.
More recently, Europe has been heading in a more American direction when it comes to monetary policy, and that's resulted in upward pressure on rates. Most recently, investors are having some doubts about Italy's willingness to play nice with EU rules. When that happens, investors seek safety in the core of the European bond market. In other words, they buy bonds from Germany and other safe-haven countries. While US bonds aren't high on that list, they still experience some of the benefits, and higher demand for bonds equates to lower rates.
Today's drop in rates wasn't extreme, but it did manage to undo most of yesterday's damage. It continues to be the case that anything short of an extreme move leaves rates painfully close to the highest levels in more than 7 years.
Loan Originator Perspective
Bond markets rebounded today, recouping yesterday's late day losses. My pricing was slightly worse than Wednesday's, since rates are based on AM markets. At any rate, glad to see things bounce back. I'm still locking early, a 1 day rally after a steep sell-off hardly inspires confidence in further rate drops. -Ted Rood, Senior Originator
Since today's open, bonds have managed a nice rally but my rate sheets do not reflect the improvements. I think today, it is worth the risk to float overnight and evaluate pricing in the morning. Only way i would consider locking today is if your lender issues new rate sheets passing along some of these gains. -Victor Burek, Churchill Mortgage
Today's Most Prevalent Rates
- 30YR FIXED - 5.0%
- FHA/VA - 4.5-4.75%
- 15 YEAR FIXED - 4.5%
- 5 YEAR ARMS - 4.25%-4.75% depending on the lender
Ongoing Lock/Float Considerations
- Rates continue coping with several big-picture headwinds, including: the Fed's rate hike outlook (and general policy tightening), the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation (which certainly seems to be the case so far in 2018).
- While rates were able to recover and stay sideways in the summer months, September and October have seen a surge up to the highest levels in more than 7 years.
- Upward pressure can continue as long as economic growth and inflation continue running near long-term highs. Stay defensive (i.e. generally more lock-biased). It will take a big change in economic fundamentals or geopolitical risk for the big picture to change. Such things tend to not happen as quickly as we'd like.
- 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.