by: Matthew Graham
Oct 8 2015, 5:01PM
Mortgage rates moved modestly higher today, depending on the lender. Once again, pricing strategies remained widely variable due to market volatility. When the trading prices of mortgage-backed-securities (MBS) changes enough during the day, lenders may reprice (i.e. change their currently-published rate sheets). Depending on the amount of movement in underlying markets, some lenders will reprice while others won’t.
Today was a good example. Trading levels began in decent enough ground, but bond markets (which include MBS) quickly deteriorate in the afternoon as stock markets broke higher. A majority of lenders adjusted rate sheets higher, but many did not. On average, the most prevalently-quoted conventional 30yr fixed rate for top tier scenarios is now moving up to 3.875%, though a few of the more aggressive lenders remain at 3.75%.
At this point, every single day this week has seen rates either fail to improve or simply move higher. By contrast, last week saw rates fall on 5 out of 5 days. This is fairly ironic considering today’s official weekly rate report from Freddie Mac shows the average rate dropping from 3.85% to 2.76%. It’s understandable though, when we consider that the Freddie survey is based primary on rates on Mondays and Tuesdays. As always, it’s not wrong, just outdated. Rest assured, rates are back up to the levels seen BEFORE last week’s nice improvements on Thursday and Friday.
Loan Originator Perspective
“Mortgage bonds started off the day to the plus side and slid for most of the trading session only to be saved by the Fed Minutes. In my opinion mortgage bonds are over bought and ready for a reversal lower. The risk of floating is higher than normal. In other words if any data point or Fed speaker spooks the bond market we could see rates increase in a hurry. I am in locking at application until things change.” -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.
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).