October 24, 2018
Mortgage rates were roughly unchanged today. That's an appalling reality considering the movement in underlying bond markets. Bonds--specifically, mortgage-backed securities (MBS)--are the primary input used by mortgage lenders in determining rates. As bonds improve, mortgage rates tend to improve as well. There can certainly be some input lag (i.e. bonds can move first and lenders need time to catch up or let volatility play out), but it's rare to see substantial improvement in bonds and limited improvement in mortgage rates. Yet that's just what we're seeing today. What gives?!
The first part of the issue is the relationship between MBS and broader bond markets. It's common to see mortgages discussed in the context of 10yr Treasury yields because MBS and 10yr Treasuries behave similarly over time. Occasionally, however, there can be big discrepancies between the two. For instance, the prices of 10yr Treasuries improved twice as fast as those of MBS today. Point being: a big bond market rally (something that's typically great for mortgage rates) was only truly big for Treasuries. Still that's only part of the problem.
The other part of the problem is debatable and multifaceted. It has to do with how lenders are able to translate market movement to their mortgage rate sheets. In general, the higher the volatility and the more sudden the movement, the more conservative lenders are. This means being slower to bring rates down during the good times and quicker to raise rates when bonds are under pressure. Past precedent suggest that if bonds can manage to hold near today's levels, tomorrow's rate sheets will deliver some of the improvement we would have otherwise seen based on today's bond market levels.
Loan Originator Perspective
I like floating today. The benchmark 10 year note has broken through resistance at 2.13. With that holding for now, i would float overnight. As of 4pm est no lender has repriced for the better. Floating will allow time for lenders to hopefully pass along 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.