Mortgage Rates Improve Slightly Today, But Risks Remain

Mortgage rates recovered a small portion of their recent losses today, but the average loan applicant might not even notice.  The 2 key ingredients of a mortgage rate (for the purposes of tracking their movement) are the rate itself (the "note rate") and the upfront costs tied to that rate.  The note rate and associated costs make up what many refer to as an "effective rate" (a number, expressed in interest rate form, that adjusts the actual note rate based on the implications of upfront cost changes.

It takes big market movement to change note rates, largely because lenders tend to offer rates in 0.125% increments.  As such, bond yields such as 10yr Treasuries need to be moving by about that much in order to see a similar change in mortgage rates.  That was the case last week as 10yr yields moved up nearly 0.25% in just a few days last week.  The average mortgage lender also moved up 0.25% on 30yr fixed rate quotes.

If rates took the elevator up, they're taking the stairs down.  Most borrowers will see a small adjustment toward lower upfront costs with the same interest rate they would have seen on Friday afternoon.  As I said last week, rates will need a very good reason to move lower in any significant way.  

This week's focal point is currently Thursday's inflation report (unless something else steps up to the plate).  If inflation is running hotter than expected, rates are at risk of remaining high or moving higher.  If inflation is weaker than expected, we could catch a bit of a bigger break, but it would take more than one day of rate-friendly economic data to undo all of last week's damage.  

Loan Originator Perspective

Bonds MAY have bottomed out today, as they posted modest gains.  My rate sheets showed an improvement of 25 bps or so to pricing, insufficient to move rates lower for most scenarios.  I'd love to proclaim this the start of a robust rally, but can't do so.  It's going to take unexpectedly bearish economic or employment data to swing the rising rate tide.  Don't see that happening soon.  Lock early, or forfeit all rights to complain about your rate at closing!-Ted Rood, Senior Originator

The wild ride continues. A brief pause here creates an opportunity to get loans locked with a little better pricing. Continuing to lock at application and managing lock extensions that become even more critical. -Al Hensling

Today's Most Prevalent Rates

• 30YR FIXED - 5.0-5.125%
• FHA/VA - 4.5-4.75%
• 15 YEAR FIXED - 4.5%
  
• 5 YEAR ARMS -  4.25%-4.75% depending on the lender

Ongoing Lock/Float Considerations 

• Rates continue coping with several big-picture headwinds, including: the Fed's rate hike outlook (and general policy tightening), the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation (which certainly seems to be the case so far in 2018).
  
  
• While rates were able to recover and stay sideways in the summer months, September and October have seen a surge up to the highest levels in more than 7 years. 
  
  
• Upward pressure can continue as long as economic growth and inflation continue running near long-term highs.  Stay defensive (i.e. generally more lock-biased).  It will take a big change in economic fundamentals or geopolitical risk for the big picture to change.  Such things tend to not happen as quickly as we'd like.

• 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.