February 1, 2018
Mortgage rates are in big trouble. Whatever you've read about the current spike so far today, you'll probably need to double it after today's bond market movement. Why? Because most news stories on rates haven't yet accounted for today's bond market movement! The most prevalent source material is Freddie Mac's weekly survey which generally tracks lender quotes from Monday and Tuesday of any given week. The survey showed a 0.07% jump week over week.
The actual jump is more like 0.12-.13. The average lender is now quoting 4.375% on top tier 30yr fixed scenarios. More than a few are already up to 4.5%. Lenders quoting rates much lower are likely doing so at the expense of profit margins and that could create sustainability concerns. Moreover, unless you're interacting directly with someone who is in a position to lock a mortgage rate for you right then and there, there's really no guarantee that the information informing any given opinion on rates is still current. In other words, things have been moving quickly. Just because your realtor's mortgage lender friend could easily quote one rate a few hours ago doesn't mean that rate is available now. Keep the volatility in mind if you happen to have a loan in process.
What's up with all the recent drama in rates? Nothing new really... Investors are concerned about increased bond market supply (higher supply = lower bond prices = higher rates) due to fiscal spending initiatives. Because that spending may have a stimulative effect on the economy, investors are also concerned about rising growth and inflation, either of which are bad for rates. OTHER investors are worried about the first group of investors and thus are making trades to try to get ahead of them. This also pushes rates higher. Additionally, global monetary policy seems like it may be on the verge of a unified tightening, much like there was unified loosening in 2008-2015. A removal of policy accommodation means big central banks are buying fewer bonds. Lower demand for bonds = lower prices = higher rates. Finally, some traders are simply reacting to the momentum--selling bonds when rates rise above a certain threshold intraday (again, selling = higher rates), thus creating a snowball effect that pushes rates higher.
The bottom line is that there is a big, pervasive uptrend in rates that's been intact since mid December. Floating and hoping for a bounce is not the right strategy at the moment, even though it will end up looking like a good idea in hindsight one of these days. We need to see a substantial push back in the other direction--and one that lasts for more than a day or two--before considering the uptrend may be getting tired.
Loan Originator Perspective
Bonds tanked today, as the broad sell off continued and rates rose. This shouldn't be a surprise to anyone by now, unless they last looked at a bond chart or read this commentary around Thanksgiving. This isn't a short term phenomenon, it's a long term market trend. Lock early, any other strategy is swimming against a robust rip tide. -Ted Rood, Senior Originator
Today's Most Prevalent Rates
- 30YR FIXED - 4.375-4.5%
- FHA/VA - 4.0-4.25%
- 15 YEAR FIXED - 3.625-3.75%
- 5 YEAR ARMS - 3.0-3.5% depending on the lender
Ongoing Lock/Float Considerations
- 2017 had proven to be a relatively good year for mortgage rates despite widespread expectations for a stronger push higher after the presidential election in late 2016.
- While rates remain low in absolute terms, they moved higher in a more threatening way heading into the 4th quarter, relative to the stability and improvement seen earlier in 2017
- The default stance for now is that this trend toward higher rates has the potential to continue. It will take more than a few great days here and there for that outlook to change.
- For weeks, this bullet point had warned about recent stability inviting a bigger dose of volatility. That volatility is now here. As such, locking is generally the better choice until the volatility is clearly dying down.
- 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.