November 26, 2015 12:45 PM Eastern
Mortgage Rate Lock Recommendation
November 24 2015
Lock if closing in 7 days:Rates may be heading up
Lock if closing in 15 days:Rates may be heading up
Lock if closing in 30 days:Rates may be heading up
Average rates for 30-year fixed-rate mortgages (FRMs) inched up yesterday, but only by 1 basis point (a basis point is 1/100th of 1 percent), according to data from Mortgage News Daily. It's been an up-and-down month for that particular rate so far, but mostly up: it closed last night 10 basis points higher than it was at the start of this month.
In early trading, 10-year U.S. Treasury bond yields, which are closely tied to mortgage rates, were a little down following a bond auction yesterday, and ahead of others today. The data published this morning (see below) has since created some volatility, and by 10:30am (ET) it wasn't possible to identify a definite trend. However, a betting person might wager that mortgage rates are going to remain steady today or move down a little. Just remember: that's far from a sure thing.
Over the last few weeks, movements in mortgage rates have often been more extreme that in the previous few months, when they tended to oscillate within much smaller ranges. There's always a risk in choosing to float or lock your rate, but this new volatility makes it more acute. True, there are more opportunities for richer rewards if rates fall again, but there is also a greater 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. LendingTree recommends the former, but only you can decide on the risk with which you personally are comfortable.
What's Going On
The Federal Reserve's Federal Open Markets Committee (FOMC) is set to meet on December 15 and 16, and many expect it to hike its interest rates then. Domestic economic data published since its last meeting – most importantly employment and inflation figures – have increased the likelihood of such a rise, and senior voting members of the committee have in recent speeches encouraged that belief.
Even though pretty much everybody expects the rise (if any) to be tiny, and that it may be a long time before a second hike, investors are obsessed by the prospect. In the run up to the meeting, they may well ignore other economic issues (such as world commodity prices, which are still very low) and view all but the most cataclysmic news through the prism of its effect on the FOMC's decision. Absent other factors, expect mortgage rates to inch up every time the probability of a December hike is perceived to increase.
Mortgage rates (except ones for existing adjustable-rate mortgages) aren't directly affected by the Fed's rates: the former are mostly to do with the supply of money into the mortgage market from investors and the demand for home loans from consumers. However, Fed rates do influence investors' decisions about where they put their cash, which is why the prospect of their changing tends to affect mortgages.
In the longer term, mortgage rates could fall again, although significant drops are likely only if potential problems in emerging economies and elsewhere turn out to be as dire as some experts predict. However, absent an unexpected economic or geopolitical catastrophe, such falls now seem unlikely within the period covered by these rate lock recommendations.
There were four sets of domestic economic data published this morning, including some key ones:
- Third-quarter gross domestic product – This is the second GDP estimate for this period, and is subject to further revision. This morning's key number, which reflects growth in the third quarter expressed as an annualized rate, was +2.1 percent, which was precisely what many analysts expected. That's up from the earlier estimate of +1.5 percent, and is good.
- September S&P/Case-Shiller home price index – The 20-city index was expected to recover compared with August, and before publication the consensus forecast among analysts was for a +0.3 percent month-on-month rise. In the event, the actual figure this morning was +0.6 percent. Another good outcome.
- November consumer confidence – Here's the first of the bad results. The Conference Board survey index dropped back in October, but most had expected a recovery in November, with many analysts anticipating a number of 99.6, according to Econoday. That signally failed to materialize, and the actual number dropped back to a terrible 90.4.
- Richmond Fed manufacturing index – These regional Fed surveys have thrown up some pretty dreadful results in recent months, but have so far been better in November. This morning's figure for the Richmond Fed's district did not continue that recent trend. Instead of the expected nice +1, the actual number was -3.
Analysts' expectations can be as important as actual figures, because markets tend to trade ahead of results, based on what the experts predict is going to happen. Leaving the GDP number aside, it's not been a good day at the office for them.
Generally, unexpectedly good economic news tends to exert an upward pressure on mortgage rates, but bear in mind that caveat about investors viewing everything through the prism of the upcoming FOMC meeting.
Recent Mortgage Rates
The average rate nationwide for a 30-year fixed-rate mortgage during the week ending November 19 was 3.97 percent with an average 0.6 point, according to Freddie Mac's latest weekly survey. The same rate averaged 3.98 percent during the week ending November 12, and 3.87 percent seven days before that. This time last year, the average 30-year FRM came in at 3.99 percent.
In a statement that accompanied yesterday's figures, Freddie chief economist Sean Becketti seemed to share LendingTree's analysis of the drivers behind recent rate movements:
Treasury yields stabilized about 5 basis points below last week's level as the market shrugged off economic data and world events and turned its attention to the minutes of the October FOMC meeting. In response, the 30-year mortgage rate ticked down a basis point to 3.97 percent.
"Locking" your mortgage means that you and your lender have agreed on an interest rate and price for your home loan. Once your loan is locked, that's the rate and price you get, regardless of what happens in the financial markets. If rates go up, you're protected but if rates go down, you won't benefit either -- you close your loan at the rate you've locked and you can’t change it. Locks have expiration dates ranging from 30 to 60 days or more, and the longer your lock period, the more it costs. If you don't close your loan on time, you could end up paying a higher interest rate.
You can lock in your loan at any time during the process. Until you lock your interest rate, you are said to be "floating" your mortgage. The only rule is that you have to lock in before you can close on your purchase or refinance.
The decision to lock or float your loan can have a long term impact so it’s important you make the right choice. That’s why we offer a quick rundown of the key factors that drive mortgage rates today and everything you need to know.
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