Last updated: March 18 2016
Float if closing in 7 days: Rates may be heading down
Float if closing in 15 days: Rates may be heading down
Float if closing in 30 days: Rates may be heading down
Early market trends suggest mortgage rates will fall a little today, or possibly hold steady. However, it’s important to recognize such early trends can change quickly, as they have done on a number of recent occasions. There are no guarantees in the current, unpredictably volatile environment. But if we were buying a home in March or April, we would cautiously float our rate. Read on for more.
There was just one release of important domestic economic data published earlier this morning, and it’s one that rarely moves markets or mortgage rates. Consumer sentiment figures are based on a survey of households that asks consumers about their personal finances and attitudes to the wider economy. Sentiment has been reasonably strong and steady since last October, but today’s number, which was for March, came in at a mildly disappointing 90. That compares with 91.7 in February. Prior to this morning’s announcement, analysts had expected a modest rise, with their consensus forecast being 92.2, according to Econoday.
Major stock markets in Europe and Asia were all up earlier, with the exception of those in Tokyo, though by relatively small amounts. About 45 minutes after opening, the Dow Jones industrial average was up +0.60 percent. The oil price then was up at $41.17/barrel, which compares with $39.21/barrel at roughly the same time yesterday. As recently as February 10, it was below $30/barrel.
By about 10:00am (ET), yields on 10-year U.S. Treasury bonds, which are usually closely tied to mortgage rates, were down, though not as sharply as yesterday morning. While those yield trends on those bonds at that time of the morning frequently turn out to be accurate predictors of the direction of travel for the day’s mortgage rates, they slow, accelerate or reverse sufficiently often that they can’t be relied upon as a basis for making important financial decisions. During unstable times, such as these, they are even less reliable, and we’ve seen the relationship between bond yields and mortgage rates grow more elastic in 2016 than previously.
Recent Mortgage Rates
Average rates for 30-year fixed-rate mortgages (FRMs) fell by 5 basis points (a basis point is one-hundredth of 1 percent) yesterday, according to Mortgage News Daily. You have to go back nine days to find them lower.
The average rate nationwide for a 30-year FRM during the week ending March 17 was 3.73 percent with an average 0.5 point, according to Freddie Mac’s latest weekly survey, published yesterday. It was 3.68 percent during the week ending March 10, and 3.64 percent seven days before that. This time last year, the average 30-year FRM came in at 3.78 percent.
In a statement accompanying the data, Freddie Mac chief economist Sean Becketti noted:
Treasury yields increased heading into this week’s FOMC [Federal Open Markets Committee – the Fed body that determines its rates] meeting, partially in response to modestly higher inflation readings. 30-year mortgage rates kept pace, rising 5 basis points to 3.73 percent. Nonetheless, at the meeting the Fed confirmed what the market had already concluded and made no change to the Federal funds target. The Fed went further and acknowledged that economic signals have been mixed and that the pace of monetary tightening may be slower than had been assumed at the end of 2015.
As (so far with masterly understatement) the Wall Street Journal warned early in January, this could be a “volatile year in global markets.” There’s always a risk in choosing to float or lock your rate, but it’s more acute in volatile environments. True, there are opportunities for rich rewards if rates fall substantially, but there is also a continuing danger of being trapped in an upward cycle that doesn’t end before you have to lock your rate.
So those who are cautious may wish to lock today, trading the possibility of further falls in rates for the security of fixing what should still be an exceptionally good mortgage deal in historical terms. Those who like to gamble might prefer to wait awhile before locking, hoping there will be further falls ahead. Only you can decide on the risk with which you personally are comfortable.
The Bigger Picture
Unlike most other interest rates, those for mortgages (except ones for existing adjustable-rate mortgages) are largely determined by the supply of money into the market from investors and the demand for such loans from consumers. That supply is heavily affected by the amount of risk investors are prepared to sustain in their portfolios. When spooked by economic uncertainty they tend to buy safer assets, including mortgage securities, which can result in an increased supply of product (cash) that drives down the price (rates). When they’re more confident, they tend to invest in riskier but more profitable assets, which reduces the supply of money for loans and drives up rates.
That’s not to say the Federal Reserve doesn’t indirectly influence mortgage rates, nor that the FOMC’s announcement on Wednesday had no impact. Indeed, over the past couple of days, we’ve seen how important the Fed is to these rates.
The Longer Term
Looking beyond, one hopes, the period covered by these mortgage rate lock recommendations, some economists are predicting a new worldwide recession, which might see mortgage rates fall even further. There are plenty of voices predicting doom and gloom. Last week, chief of the Bank of International Settlements (“the central bankers’ central bank”) Claudio Borio added his, remarking, “The tension between the markets’ tranquility and the underlying economic vulnerabilities had to be resolved at some point. In the recent quarter, we may have been witnessing the beginning of its resolution.” He went on, “We may not be seeing isolated bolts from the blue, but the signs of a gathering storm that has been building for a long time.”
However, not all experts are so pessimistic, at least when it comes to the American economy. Earlier this month, global bank Credit Suisse published its analysis: “A string of positive U.S. economic data releases have strengthened the argument that consumer demand will keep the U.S. from falling into recession in the coming months.” And, last week, a note from Comerica Bank’s economics team said:
The quality of U.S. economic data has shifted in recent weeks from being generally a little worse than expected to being generally a little better than expected … We have started to dial back our probability of near-term recession for the U.S. from an uncomfortable high of about 33 percent a month ago to about 25 percent in early March. If the recent data pattern continues, we will dial it back further next month.
Still, Fannie Mae’s predictions for average rates for 30-year FRMs changed considerably in the latest (February) edition of its Housing Forecast. It now expects that rate to average 3.8 percent throughout 2016. Fannie reckons it could increase to 3.9 percent in the first quarter of 2017, and remain there until it rises to 4.0 percent in the last quarter of next year. That’s very different from its January forecast, which predicted that rate would average 4.0 percent in the current quarter, 4.1 percent in the following two, and 4.2 percent in the last quarter of 2016. You may prefer to see the newer numbers as a sign of how difficult it is to forecast rates in a volatile environment, rather than as a reliable guide to the future.