Monthly Archives: May 2016
Mortgage rates held surprisingly steady today, even though underlying bond markets were in noticeably weaker territory. As bonds weaken, rates normally move higher, but there’s been a bit of a disconnect recently. In light of our discussion last week, perhaps it isn’t so surprising. We had anticipated that mortgage rates would start out with an advantage this week because they didn’t move much lower at the end of last week even though bond markets were stronger. In other words, bond markets are suggesting rates should be right about where they were on Thursday afternoon, and that’s exactly where they are.
Naturally, this means that we no longer have the same sort of implicit advantage we enjoyed on Friday afternoon heading into the weekend. As such, it’s definitely safer to lean back toward locking. The most prevalently-quoted conventional 30yr fixed rate remains 3.625% on top tier scenarios, with a smattering of lenders still down at 3.5%.
While it is true that rates can exhibit this “sideways at the lows” behavior before continuing to even lower levels, it’s just as much of a risk that rates are running into a bit of a floor here. As such, locking is an easy call here, given that rates are at 3-year lows. Risk tolerant borrowers would also be justified in waiting to see how things shake out (i.e. waiting to lock) as long as they accept the possibility of being forced to lock at a slightly higher rate if markets move against them. Yes, that sounds obvious, but the point is to decide on a limit of rate movement before accepting the defeat. For instance, if my rate is x today, I will lock if rates move to x+.125%.
With the impressive run we’ve seen so far in addition to the outright levels being close to the year’s lowest, there’s limited incentive to delay locking. To be sure, rates can definitely continue to move lower, but past precedent suggests the current scenario is typically a better locking opportunity.
Tomorrow brings the important Employment Situation report–the most important piece of economic data in the US on any given month. It always has plenty of potential to move bond markets (and thus, rates), although the generally strong level of job creation is old news to some extent. Financial markets may instead focus on other aspects of the report, like the average hourly wage component, because it speaks to inflation. Inflation is the last major hang-up for the Fed when it comes to continuing to hike rates. If market participants view the Fed as more likely to hike, present day interest rates will likely rise in advance of the next Fed meeting.