February 7, 2016 10:01 AM Eastern
Mortgage Rate Lock Recommendation
February 5 2016
Lock if closing in 7 days:Rates may be heading up
Lock if closing in 15 days:Rates may be heading up
Float if closing in 30 days:Rates may be heading down
It looks, at the time of writing, as if average mortgage rates might rise a little or remain steady today. However, markets remain volatile and trends can shift in minutes, so no predictions here come with guarantees.
The big news today is the content of the official employment situation report for January. It contains a wealth of data:
- Nonfarm payrolls – Month over month, the number of new jobs increased 151,000, compared to December's rise of 262,000 (revised). That was disappointing, and well below analysts' pre-publication forecasts, the consensus of which was 188,000, according to Econoday.
- Unemployment rate – This "was little changed," in the words of the U.S. Bureau of Labor Statistics, having edged down to 4.9 percent from 5.0 percent.
- Private payrolls – Month over month, the number of new private-sector jobs rose 158,000. It increased by 275,000 in December, and analysts had hoped to see 180,000 today.
- Average hourly earnings – These went up +0.5 percent, month over month, which was better than December's +0.3 percent. At last some good news.
- Average work week for all employees – This increased to 34.6 hours, having inched up from December's 34.5 hours. That too is good news, but hardly enough to make up for those disastrous payroll figures.
The other key domestic economic data published this morning is also capable of moving both markets and mortgage rates. December's international trade figures showed the trade gap that month widening to -$43.4 billion from November's -$42.2 billion (revised). That's worse than the analysts' consensus of -$43.0 billion, but not much.
At about 9:45am (ET), yields on 10-year U.S. Treasury bonds, which are closely tied to mortgage rates, were slightly higher. 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.
Also at about 9:45am (ET), major stock markets around the world were mixed, with some indexes showing modest gains while other were experiencing equally undramatic losses. The Dow Jones industrial average was down by just -0.16 percent. The oil price was heading down.
As (so far with masterly understatement) the Wall Street Journal recently warned, 2016 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.
That advice applies to all readers, even though LendingTree suggests that those with longer to wait before they must lock might prefer to continue to float. That recommendation is not based on any special insights concerning how mortgage rates might move, but merely on the calculation that there's a greater chance – amid the current volatility – of significant falls within 30 days than 15. Such falls may not occur at all, and it's perfectly possible rises will predominate over that period.
Average rates for 30-year fixed-rate mortgages (FRMs) held steady yesterday, according to Mortgage News Daily. That leaves them at their lowest point in several months.
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 safe 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 and drives up rates. That's not to say the Fed doesn't influence mortgage rates; just that it does so only indirectly.
Many experts expect American mortgage rates to edge up early this year and to stay a little higher than at present: In its current Housing Forecast, published January 11, Fannie Mae's economics team predicted that those for 30-year FRMs will 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.
Recent Mortgage Rates
The average rate nationwide for a 30-year FRM during the week ending February 4 was 3.72 percent with an average 0.6 point, according to Freddie Mac's latest weekly survey, published yesterday. The same rate averaged 3.79 percent during the week ending January 28, and 3.81 percent seven days before that. This time last year, the average 30-year FRM came in at 3.59 percent.
Freddie Mac chief economist Sean Becketti observed in a statement that accompanied yesterday's data:
Market volatility -- and the associated flight to quality -- continued unabated this week. The yield on the 10-year Treasury dropped another 15 basis points, and the 30-year mortgage rate fell 7 basis points as well, to 3.72 percent. Both the Treasury yield and the mortgage rate now are in the neighborhood of early-2015 lows. These declines are not what the market anticipated when the Fed raised the Federal funds rate in December. For now, though, sub-4-percent mortgage rates are providing a longer-than-expected opportunity for mortgage borrowers to refinance.
"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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