Mortgage rates continued lower today, largely getting caught up with yesterday’s underlying market movements. Lenders were likely being cautious due to prospects for volatility in today’s trading, not to mention the increased volatility seen on Tuesday and Wednesday. All things being equal, rates will be lower if volatility is lower because fluctuations in bond markets (which includes the mortgage-backed-securities that dictate mortgage rates) make it more expensive for lenders to guarantee rate locks.
In other words, yesterday was only the first day where bonds fought back against a modestly weaker trend over the previous few days, and lenders didn’t adjust rate sheets accordingly. When bonds held their ground again today, lenders were more willing to adjust rate sheets into better territory. In fact, today’s average rate sheet is the 2nd best in the past 6 months, with only a few hours on Friday 10/2 being any better. Most lenders are quoting conventional 30yr fixed rates between 3.75 and 3.875%.
Loan Originator Perspective
“As many expected, the ECB hinted at further economic stimulus amid stagnant prices today, and bonds benefited but only to a point. We’re (once again) near the very bottom of a well established rate range, and it appears we’ll need major motivation to breach these levels. While I expect next week’s Fed Statement to be typically obtuse, there certainly are no signs of domestic inflation looming. We may not see huge rate improvements in the short term, but at least rates don’t seem poised to rise substantially either. I’m probably 60-40 lock/float now, hard to go wrong either way, as long as you understand that floating means your pricing may improve OR worsen.” –Ted Rood, Senior Loan Originator
Today’s Best-Execution Rates
- 30YR FIXED – 3.75-3.875%
- FHA/VA – 3.5%
- 15 YEAR FIXED – 3.125%
- 5 YEAR ARMS – 2.75 – 3.25% depending on the lender
Ongoing Lock/Float Considerations
- 2015 began with a strong move to the lowest rates seen since May 2013. The catalyst was Europe and the introduction of European quantitative easing. Investors bet heavily the move lower in European rates and domestic rates benefited as well. But with those bets finally drying up in April and with the Fed seemingly intent on hiking rates in the US, May and June saw a sharp move back toward higher rates. The implicit fear is that global interest rates set a long term low in April, and have now begun a major move higher.
- July said “not so fast” to that potential “big bounce.” Some of the data began to suggest the Fed is still a bit too early in talking about raising rates in 2015–particularly, a lack of wage growth or any promising signs of inflation. But Fed proponents maintain that low inflation is a byproduct of temporary trends in the value of the dollar and the price of oil, and that once these factors level-off, inflation will ultimately return. That side of the argument suggests that inflation could increase too quickly if the Fed hasn’t already begun normalizing interest rates.
- With all of the above in mind, locking made far more sense for the entirety of May and June, and we were not shy about saying so. The second half of July saw that conversation shift toward one where multiple outcomes could once again be entertained. In other words, we went from “duck and cover!” to “let’s see where this is going…” Even the Fed took a similar stance when it held off raising rates when it had an excellent opportunity to do so in September’s meeting.
- In the bigger picture, financial markets are now at a crossroads.
This is true for both stocks and bonds, with each trying to determine if
it will move back into the the ranges seen in June and July or if the
recent move lower in yields and stock prices was merely the first wave
of a longer campaign. If we take the Fed at their word, and if we
forego any concerns about increasingly weak global economic growth,
there is certainly more risk that rates move quickly higher vs
quickly lower. Hoping for lower rates is a long-term game meant only
for economic pessimists who know the fact that the world is doomed will
come to light fairly shortly. The latter must also be willing to pay
higher rates if they end up being wrong (or otherwise unwilling to wait
long enough to be right). All that having been said, those pessimists have increasingly been proven right as 2015 has progressed.
- 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).