Mortgage rates dropped quickly again today, easily hitting the lowest levels since late 2017 for the average lender. The move comes in response to a surge in volatility and perhaps even a wave of panic in financial markets. Stocks have fallen somewhat swiftly as trade tensions increasingly look like an ongoing narrative as opposed to a temporary issue. The bigger story, however, is in the bond market (which is directly responsible for most interest rates, including mortgages).
Relative to stocks, bonds have been undergoing a much bigger move as the market attempt to reprice its expectations for Fed rate cuts. Yes, that’s CUTS with a “C” now. Up until the past few days and weeks, you were just as likely to hear about potential “hikes.” But all that seems to have gone out the window, and quickly! In less than a week, speculators are betting on the Fed cutting rates by an additional 0.75%. That’s on top of the 0.25% cut that was already priced-in at the time.
The Fed doesn’t set mortgage rates, nor are mortgage rates (other than HELOCs) based on the Fed Funds Rate. That said, the Fed’s rate definitely tends to move in the same direction as longer-term rates (like mortgages) over time. The biggest reason for this is that the underlying economic realities that push longer-term rates lower also tend to argue a case for Fed rate cuts. Even so, there’s some additional benefit for longer-term rates when Fed rate hike/cut probabilities are rapidly shifting. In other words, the past few business days represent the best pace of gains that mortgage rates typically see outside of a specific, catastrophically huge development.
Loan Originator Perspective
Bonds continued carving out gains today, amid global economic uncertainty and Tariff Trauma. Treasury yields sank to 2.1% as of mid day, their lowest level since Nov 2016. Any growth inferred from last year’s tax “cuts” was a mirage. Great situation for bonds and borrowers, I am only locking loans closing in the next 15 days. –Ted Rood, Senior Originator
Today’s Most Prevalent Rates
- 30YR FIXED – 3.875%
- FHA/VA – 3.75%
- 15 YEAR FIXED – 3.875%
- 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 (and even their EXPECTED response) to the economy has helped rates fall more quickly than they otherwise might.
- Based on the Fed’s laundry list of concerns, the bond market (which determines rates) will be watching economic data closely, both at home and abroad, as well as trade-related concerns. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.
- 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.