Mortgage rates surged again today as the underlying bond market continued to capitulate to selling pressure. Let’s talk about what that means in plain English! Capitulation in financial markets refers to investors on one side of a trade gradually becoming overwhelmed by the momentum on the other side.
Since Wednesday, several developments began adding momentum to the “higher rates” side of the bond market trading environment. Individually, none of these factors necessarily spelled doom, but their combined effect has been more noticeable.
Even then, we likely wouldn’t be seeing as big of a move were it not for the fact that rates have been moving in a narrower and narrower pattern. Such consolidation patterns often give way to breakouts that carry more momentum than average. It’s not unfair to say that bonds were feeling pent-up in the recently narrow range and are subsequently releasing that pent-up energy.
All that to say that there are objective underlying reasons for the move in rates (aka “fundamental” data like economic reports and certain news headlines), but the move is also being exacerbated by the recent trends in bond trading itself (aka “technical” motivations based on patterns in the charts and other purely mathematical assessments of what rates should do based on past precedent).
As for black and white nuts and bolts, the easiest way to quantify the move would be to say that the average lender is now quoting a rate that’s nearly an eighth of a percentage point higher compared to the quote for the same scenario on Wednesday morning. This pencils out to about $22/month on a $300k loan (or just over $7 for every 100k borrowed).
Loan Originator Perspective
As anticipated, bonds finally broke their recent exceptionally tight range, and added to yesterday’s losses despite unsurprising inflation data. While rates are only marginally higher, this may be the start of a rising rate trend. I’m locking loans closing within 45 days.
Today’s Most Prevalent Rates
- 30YR FIXED – 4.375 – 4.5%
- FHA/VA – 4.125 – 4.25%
- 15 YEAR FIXED – 4.0 – 4.125%
- 5 YEAR ARMS – 4.25 – 4.625% depending on the lender
Ongoing Lock/Float Considerations
- Headwinds that had plagued rates for most of the past 2 years began to die down in late 2018. A rapid decline in the stock market certainly helped drive investors into bonds (which helps rates) Highest rates in more than 7 years in Oct/Nov. 8-month lows by the end of the year
- This is a bit of a crossroads. The rising-rate environment could flare up again. We may look back at Oct/Nov and see a long-term ceiling, or we may look back at early December and see a temporary correction before more pain.
- Either way, late 2018 was a sign that rates are willing to take opportunities presented to them. From here, it will be up to economic data, fiscal policies, and the stock market to decide on the next set of opportunities. The rougher the overall outlook, the better interest rates tend to do.
- 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.