First thing’s first: mortgage rates didn’t have nearly as bad a day as US Treasuries. The latter serve as a general benchmark for the former, but can take cues from different sources with varying levels of intensity.
Today’s most widely-discussed cue was yesterday afternoon’s release (or “leak”) of Trump’s tax plan. It’s essentially a thorough bullet-point list that serves as a starting point for a drawn-out legislative process. At the end of the day, actual tax reform may be quite a bit different than the details being circulated today. That fact may help explain why there wasn’t a bigger, more unified reaction in other markets (like stocks).
More simply put, if rates were truly reacting exclusively to the promise of economic strength due to tax reform, we’d expect to see movement in other markets to corroborate that story. Instead, stocks and bonds were fairly disconnected–especially overnight in Europe, when most of the weakness in bond markets happened.
Thankfully, the weakness in broader bond markets didn’t transfer to mortgage rates any more than it did. The average lender only saw a set-back of several days, thus leaving rates in line with last week’s higher levels. be aware though, rates could easily continue higher tomorrow as the mortgage world gets caught up with the broader bond market. Bottom line, today’s bond market weakness raises the risk of additional momentum toward higher rates.
Loan Originator Perspective
I was definitely caught off guard with the overnight selling in bonds. If you floated, rate sheets are worse. Since the damage is done, I think I would continue to float. We have a treasury auction today and tomorrow, once complete it isn’t uncommon for bonds to rally. We are also at month, quarter end which is also usually supportive for bonds. As I stated yesterday though, I’d only float if you can afford to be wrong. –Victor Burek, Churchill Mortgage
Tuesday, Chairwoman Yellen stated the Fed likely overestimated both inflation and economic growth, which should have boosted bonds. Instead we saw a significant overnight selloff, with today’s pricing as much as 50 bps below Monday’s. Part of the losses may be due to the tax reform plan touted today, but the odds of it passing anytime soon are slim/none. Markets don’t always make sense, and this is a prime example. Nonetheless, folks close to closing or with limited risk tolerance should look at locking here. –Ted Rood, Senior Originator
Today’s Most Prevalent Rates
- 30YR FIXED – 3.875-4.0%
- FHA/VA – 3.5%
- 15 YEAR FIXED – 3.25%
- 5 YEAR ARMS – 2.75 – 3.25% depending on the lender
Ongoing Lock/Float Considerations
- 2017 has proven to be a relatively good year for mortgage rates despite widespread expectations for a stronger push higher after the presidential election in late 2016. Most of the rate spike was done by the end of 2016 and we’ve generally moved sideways to lower since then
- The biggest question is whether or not this counter-intuitive trend has an expiration date. Rates haven’t been immune from brief corrections back toward higher levels, and each correction causes concern that the good times are over.
- Despite those concerns, we’ve seen rates make new lows in April, June, and September. Although rates have been rising since early September, they’d have to move even higher before we’d consider a change in the bigger picture theme.
- All of the above having been said, past precedent suggests we’re due for a much bigger dose of volatility some time soon.
- Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.
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