Mortgage rates dropped today. It wasn’t a huge move, but they didn’t have to go very far to get to the best levels of the month. To be fair, many prospective borrowers are still seeing the same interest rate at the top of a loan quote that they would have seen any time in the past 2 weeks. In those cases, it would simply be the upfront costs that moved down.
As for the motivation for the move, underlying bond markets had a good day thanks to an economically downbeat press conference from the European Central Bank (ECB) and weaker-than-expected inflation data in the US. The ECB doesn’t dictate rates in the US any more than the Fed directly controls mortgage rates. But they do set policies that have a big impact on European bond markets which, in turn, have an impact on the US bond market. And the US bond market definitely has a direct impact on mortgage rates.
Bonds also cheered the tepid inflation data, or rather, bonds didn’t move into weaker territory–something they might have done if inflation was higher than expected. In general, bonds hate inflation because bonds earn a return based on today’s dollars and inflation makes future dollars worth less. In other words, more inflation means interest rates would need to go higher in order for investors to get the same return on investment. The bottom line is that stable/low inflation is neutral/good for rates.
There are still some risks on the horizon from things like a potential US/China trade deal and an amicable Brexit agreement (both would help the global economy and a stronger economy = higher rates, all other things being equal). Otherwise, today’s bond/rate improvement is the best indication we’ve had in 2 weeks that rates can continue operating in the new, lower range achieved in late March.
Loan Originator Perspective
Bond markets rallied today on tame inflation data, dovish ECB rhetoric, Fed Minutes that underscored members’ economic concerns, and a successful 10 year Treasury auction. We’re back near our recent lows, although some banks may not pass today’s gains along until tomorrow. Given tomorrow’s lack of economic data, I’ll float new applications overnight, anticipating better pricing tomorrow AM. –Ted Rood, Senior Originator
Today’s Most Prevalent Rates
- 30YR FIXED – 4.125%
- FHA/VA – 4.0%
- 15 YEAR FIXED – 3.875-4.00%
- 5 YEAR ARMS – 3.875-4.25% depending on the lender
Ongoing Lock/Float Considerations
- Early 2019 saw a rapid reevaluation of big-picture trends in rates and in markets in general
- The Federal Reserve has been a key player, and while they aren’t the ones pulling the global economic strings, their response to the economy has helped rates fall more quickly than they otherwise might.
- Based on the Fed’s laundry list of concerns, their current outlook for rate hikes and economic growth, and their bond-buying policy shifts, we’ve all but certainly seen the highest rates of this economic cycle in late 2018.
- 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.