Mortgage Rates Inch Lower Ahead of Fed
Mortgage rates moved only slightly lower today, belying the amount of positive market movement in the mortgage-backed-securities that normally influence lender pricing. Indeed, MBS continue to influence rate sheets more than anything else, but there are always other considerations. These “other considerations” tend not to change very much, day to day, thus leaving MBS as the undisputed king of mortgage rate change motivation.
One of the other considerations is the extent to which lenders expect volatility on the near term horizon. If markets might be exceptionally volatile some time soon, lenders might be more conservative with pricing because volatility costs lenders more to deal with. It’s fairly common to see this sort of conservative stance heading into events that are known hubs for volatility. Tomorrow’s Fed announcement (and press conference) are two such events.
Even with a bit of a conservative stance, many lenders still saw fit to improve rate sheets in the middle of the day as underlying markets improved. Some lenders even lowered rates more than once. But before you get too excited, understand that we’re talking about very small adjustments to the closing costs associated with prevailing rates, and NOT the actual contract rates themselves. In other words, if you were being quoted 4.125% yesterday, you would almost certainly still be quoted 4.125% today, but with slightly lower closing costs or higher lender credit, as the case may be.
When it comes to tomorrow, take a cue from lenders and assume that things can go either way, and forcefully so. There’s a lot at stake in the coming months with respect to Fed policy and rates. While the Fed’s rate hike doesn’t directly affect mortgage rates, it can and will have an immediate, indirect effect on the broader bond market. We’re not expecting the Fed to hike tomorrow, but even if Yellen merely says something that seems to confirm a September rate hike likelihood, it will be a big deal. If you don’t lock your loan before the Fed (2pm eastern, tomorrow), don’t expect to be able to efficiently lock it after 2pm if rates are rising unless you already have a game-plan with your lender.