Mortgage rates had a tremendously uneventful day, holding roughly the same levels as those seen yesterday and the day before. In this case, a lack of movement is a good thing considering rates are very close to their best levels in more than 5 months. In fact, only 2 days have been any better during that time. Most lenders are quoting conventional 30yr fixed rates of 3.75% to 3.875% on top tier scenarios.
The strength in rates is particularly welcome news considering it’s accompanied by strength in stocks. In recent weeks, rates have been more likely than normal to be moving in the same direction as stock prices on any given day. If the normal relationship had held up, we definitely would have seen rates move higher over the past two days. While that is heartening today, it can also serve as a bit of a warning.
If the weakness and stagnation in stocks over the past 2 months has contributed to lower interest rates, rates could come under more pressure if stocks continue higher. If that sounds like common sense, it is. The difference is that stocks are just now crossing up into levels that suggest they might make a more serious attempt to move back up into the levels seen before the big sell-off in August.
Loan Originator Perspective
“It appears we are gonna be stuck in the current trading range until we get the FOMC announcement on the 28th. Until then, I do not suspect we will see much gains in pricing and more likely we will probably trend toward the higher part of the range. I think you are safe to float over the weekend, but I would be looking to lock loans sometime early next week.” –Victor Burek, Churchill Mortgage
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).