Mortgage rates avoided any further damage today after moving to the highest levels in a month yesterday. The past two days made for the sharpest increase in rates since late August, with today’s offerings remaining relatively unchanged for some lenders and just a bit lower for others. Even after taking the minor improvements into account, today’s average conventional 30yr fixed rate quote is at lease an eighth of a point higher the same quote on Tuesday afternoon. Most lenders are quoting 3.875% to 4.0% versus a previous range of 3.75% to 3.875%.
There is definitely a risk that rates will get back to the business of moving higher next week depending on the economic data. Based on this week’s Fed announcement, it wouldn’t take much strength in the data to keep the threat of a December rate hike very much alive. While the Fed’s target rate (the thing that might be increased for the first time in almost 10yrs) doesn’t directly dictate mortgage rates, expectations for a hike put upward pressure on rates between now and then (the December Fed meeting). If next week’s economic data is flat or better, rates could rise fairly quickly. At this point, any further movement toward higher rates should be respected as more than just a passing fad. That’s not to say rates will absolutely rise, but rather, if they do, the trend could last longer than the last few blips.
Loan Originator Perspective
“Today’s weak inflation data helped to stop the bleeding in mortgage bonds and they were able to mount a rally. Today being month end it is hard to rely on technicals and the charts but if we have another up day on Monday we could be in could shape moving forward. It may be worth taking the risk heading into the weekend and evaluate locking on Monday.” –Manny Gomes, Branch Manager Norcom Mortgage
Today’s Best-Execution Rates
- 30YR FIXED – 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).