September 4, 2015 01:48 AM Eastern
Mortgage Rate Lock Recommendation
September 3 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
You could have read here 24 hours ago how extraordinary it is, given the turmoil happening in other markets, that the daily average rate for a 30-year fixed-rate mortgage has remained between 3.98 percent and 4.00 percent over the last eight days. This morning, CNBC is speculating that could be a result of tinkering by the Federal Reserve in the U.S. government bond market (which is closely linked to mortgage rates) and China selling some of its $1.3 trillion investment in U.S. Treasurys. If that's the case, yields and rates might be being artificially maintained, and, if either the Fed or Beijing stops doing what, if anything, it's doing, there could be a quite sharp correction. This means you should keep a particularly close eye on the direction rates take, and be ready to act with agility if those stray too far outside your personal comfort zone.
What's Going On
Even without the possibility of interference in the bond and mortgage-rate markets, there's plenty of uncertainty around at the moment. Three factors are particularly hard to call:
- When the Federal Reserve is going to implement its first rate hike in nine years. At one point, most observers believed that would happen later this month, then support for that belief fell back, then it grew again, then ... you get the picture. However, there remains plenty to go wrong before a final decision is made, and Wall Street will be closely examining every important release of domestic economic data in case it influences whether Fed rates rise or stay put. Investors want to see an early rise, and any growth in the expectation that one will occur can push up mortgage rates – and any fall in that expectation can drag them down. Expect an increasingly bumpy ride in the couple of weeks before the Federal Open Markets Committee (FOMC, the committee that makes these decisions) meets on September 16-17.
- Whether another foreign crisis is going to threaten the global economy. The most recent threat came from a slowdown in China's economy, but that seemed to recede last week. However, it was revived Monday, though in a much milder way, when the country unveiled poor figures for its manufacturing sector. Asian markets this morning were calm as markets in China were closed to allow the country's leaders to show off their new military hardware in a set-piece parade. A growing foreign crisis of real importance tends to pull down American mortgage rates, while a receding one usually pushes them up.
- Whether commodity prices will recover soon. These have been way down in recent weeks, suggesting a stunted potential for growth in the global economy. Many were relieved when oil prices moved up off the floor last week. But some of those gains have been lost over the last few days, though they were creeping up a little first thing this morning. As we've all seen in recent years, poorly performing economies tend to have lower interest rates across the board.
This morning's Fear and Greed Index from CNN Money, which seeks to gauge investor sentiment, stood at 10, representing extreme fear on its 1-100 scale. Still, that's better than last week when it bumped down to 3. To put things in context, it was 49 this time last year.
Today's Economic Data
This week's important domestic data have been good, though secondary figures were mixed. But few will care about or remember much about those if tomorrow's jobs report falls seriously below expectations. That's because those employment numbers are going to be one of the key factors affecting how the FOMC votes on Fed rates in two weeks' time. Irritatingly, history shows August payroll numbers to have come in significantly below consensus forecasts in seven of the last 10 years – only to be revised upward later, according to The New York Times quoting RBS.
Today's releases are far from unimportant, and Wall Street will be poring over them:
- International trade – The trade gap narrowed in July to -$41.9 billion, compared with -$43.8 billion in June. That was good news, and very much in line with expectations.
- New jobless claims – New claims for unemployment insurance during week ending August 29 totaled 282,000, which was noticeably worse than the 278,000 expected by the most pessimistic mainstream analysts. However, in historical terms, this was still a remarkably low number.
- The final flash for the US services purchasing managers' index (PMI) – This did better than most had anticipated, coming in at 56.1, while the consensus expectation was 55.2, according to Econoday.
Why so much talk of "expectations" in this space every day? Because investors commonly trade ahead of actual results on the basis of their favorite analysts' expectations. It's when outcomes differ significantly from those expectations that markets tend to move most sharply and quickly.
Recent Mortgage Rates
The average rate nationwide for a 30-year fixed-rate mortgage during week ending September 3 was 3.89 percent with an average 0.6 point, according to Freddie Mac's latest weekly survey, published this morning. The same rate averaged 3.84 percent during week ending August 27, and 3.93 percent seven days before that. This time last year, it was 4.10 percent. This morning, soon before 10:00am (ET), it looked probable that mortgage rates were heading down, though barely perceptibly and you certainly would be brave to declare a trend.
Freddie chief economist Sean Becketti today agreed with LendingTree about the importance to coming mortgage rates of the Fed's pending deliberations and tomorrow's employment data:
The Fed took great pains at the Jackson Hole conference to keep all their options open and to avoid making too much -- or too little -- of the situation in China and the volatility in global equity markets. This Friday's employment report is the last piece of significant, solid evidence the FOMC will have to consider before their September decision. The Street appears to be calling it a coin flip. There won't be a clear direction for mortgage rates until the Fed makes its September decision, at the earliest.
One of the characteristics of periods like this is their volatility.
Whether you decide to float or lock your rate is entirely a matter for you. There's a risk in doing either as the recent period of stability in rates could end at any moment. Those who are financially conservative may prefer to lock now. They'd be trading the possibility of a better rate in a few days or weeks for the security of fixing what should still today be a great one, at least in historical terms. Those who enjoy a bet might prefer to float in the hope their rate will fall before they close.
"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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