Mortgage Rates Higher, Volatility Looms

Mortgage rates continued higher for the 2nd straight day after hitting the lowest levels in more than 7 months earlier this week.  Wednesday's big move lower was a direct result of political headlines relating to potential wrongdoing in communications between Trump and former FBI Director Comey concerning the FBI's investigation into former National Security Advisor Flynn's communication with Russia.  Specifically, financial markets perked up when a story broke suggesting that the House Oversight Committee could easily demand these records.  The most widely-discussed implication (assuming wrongdoing were to be confirmed) was potential impeachment.  Several lawmakers went so far as to make promises to that effect via twitter and other media.

What does all this have to do with mortgage rates?  

Rates are basically the "yield" portion of "bonds."  As bond prices rise, investors are willing to pay more for a certain interest rate return.  Rising prices mean falling rates.

When "something scary" is potentially happening in the economy or the geopolitical sphere, investors tend to seek the relative safety of the bond market.  Bonds are liquid (easy to find buyers and sellers).  And they often move in the opposite direction from stocks during panic.  In other words, if stock prices are falling due to panic, bond prices tend to be rising.  Thus, stocks and rates fall together during times of panic (because, again, bond prices move inversely to rates).  

With all that in mind, it would seem simple enough to conclude that panic over the potential impeachment made stocks and rates go lower.  While that's true to some extent--especially earlier in the week--investors are perhaps more concerned that a politcal imbroglio would further delay the fiscal reforms upon which the hopes and dreams of the post-election market movement are built.  Basically, impeachment or not, "this doesn't bode well for tax reform and other pro-growth campaign promises."

Markets have moved on from initial panic and are now biding their time--waiting for more information to come from next week's potential congressional testimony from former FBI Director Comey.  Between now and then, rates are unlikely to move much lower (they tend to get the biggest benefit on the first day of these panic moves), but they're similarly not likely to make a panicked move back toward higher levels.  What we're left with is a moderate drift higher over the past 2 days, and risks of a bigger mover some time next week.

It's still a good time to lock for less risk-tolerant borrowers.  More risk-tolerant borrowers can still make a case for floating as long as they're ready to bail (i.e. lock) if rates start moving quickly higher. Whatever you do, if you're floating, have a plan in place with your originator regarding the conditions that would justify locking.

Loan Originator Perspective

We've had sharp improvements in mortgage pricing this week due to the ongoing political turmoil because this threatens the political agenda markets felt might push rates higher.  One might believe this is a signal to float right now in hopes of further rate improvements from additional turmoil.  Expect the unexpected in my opinion. For short closings (30 days or less) I would be taking advantage of these gains and protecting the pricing in front of us now.  For longer lock periods, assess your risk tolerance and act accordingly.   -Hugh W. Page, Mortgage Banker, SeacoastBank

Bond markets continued an orderly pull back today, as White House Drama waned for the moment.  My pricing was down marginally from Thursday's, glad I locked several loans yesterday.  It's going to take more motivation for our downward rate trend to continue, and until that happens I see rates drifting upward.  Float with caution, if within 30 days of close, great time to lock up your gains. -Ted Rood, Senior Originator

Today's Best-Execution Rates

• 30YR FIXED - 4.00%
• FHA/VA - 3.75%
• 15 YEAR FIXED - 3.25%
  
• 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

• Investors were relatively convinced that the decades-long trend toward lower rates had been permanently reversed after Trump became president, but such a conclusion would require YEARS to truly confirm
  
  
• Instead of continuing higher in 2017, rates instead formed a narrow, sideways range, and held inside until April.  Investor perceptions are shifting such that fiscal reforms and other policy developments will need to live up to expectations in order to push rates higher.  Geopolitical risks would also need to avoid flaring up (more than they already have)
   
• For the first time since the election, we're in a rate environment where you wouldn't be crazy not to lock at every little opportunity/improvement.  Until/unless it's broken, the highest rates of early-2017 mark the ceiling, and we're now waiting to see how much lower we can go from here.
   
• 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.