Mortgage rates fell modestly today despite some weakness in underlying bond markets. Typically, when bond yields (which move inversely with bond prices) are rising, mortgage rates tend to be higher as well. That wasn't the case today for a few reasons. The most obvious reason is that bond markets didn't move that much.
Slightly more subtle is the fact that most of today's trading activity took place within yesterday's range, and yesterday ended on a low note for yields. In other words, bonds yields were only "higher" when compared to yesterday afternoon's levels, but roughly in line with everything else.
Finally, mortgage rates simply have not and will not keep perfect pace with the movement in broader bond markets. As we've discussed frequently this past week, both the bonds that underlie mortgages and the lenders that depend on them will need to see the overall bond market commit to holding the new levels achieved after last week's Brexit news. Only then will rates begin moving back within their normal distance from broader benchmarks like US Treasury yields.
Everyone with a potential loan in process wants to know if rates will drop further or if they should lock to avoid the risk of rates snapping back. I will say that rates CAN go lower, but even before last week's Brexit news, we were already looking at diminishing returns with each new move lower. That said, with today's rates being the lowest in more than three years, it's perfectly reasonable to wait for at least one small move higher for a signal to lock.
Loan Originator Perspective
"As the Brexit drama continue to play out, rate sheets continue to show some improvement. The longer these gains hold, the more lenders will be able to pass along. Until we get non farm payrolls next week, economic data doesn't matter. With solid support above on the 10 year note, I continue to favor floating, especially if closing in over 10 days." -Victor Burek, Churchill Mortgage
"I’ll take today’s action in the bond market after the last few days. Pretty much an inside day after the last few days feels like a win. Hopefully investors/lenders get comfortable enough here to pass on even more gains in the near future. As long as we stay under 1.53 on the 10 year it feels like a good time to float an see what happens. If we start to get close to that locking at 3 year lows isn’t a bad thing." -Jeff Anderson, Loan Officer, Salem Five Mortgage, LLC
Today's Best-Execution Rates
- 30YR FIXED - 3.375-3.5%
- FHA/VA - 3.25%
- 15 YEAR FIXED - 2.75%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- Markets had been primarily concerned with the timing of the Fed's second rate hike (after they first hiked in December 2015)
- The possibility that the U.K. would vote to exit the European Union (Brexit) has since taken over as the biggest flashpoint for markets.
- The Fed freely admits it didn't hike in June because of this and because it wants to be sure that jobs numbers aren't taking a bigger turn for the worse. Mortgage rates moved farther into 3-year lows as a result.
- Brexit happened and rates rejoiced. Lock if you like what you see. The longer term trend remains positive regardless, but periodic corrections toward higher rates continue to be a risk.
- As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, conventional 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.' Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy. It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).