Mortgage rates plunged today as the bond market extended its positive reaction to yesterday’s Fed announcement. The Fed doesn’t set mortgage rates, but the market’s expectation of Fed rate-setting policy has a major impact. In other words, because the Fed generally confirmed the market’s suspicion that rate cuts could be warranted in 2019, traders were willing to push rates even lower than they already had in advance of Fed day.
Some lenders had already adjusted rate sheets yesterday afternoon to account for the bond market improvements that were already in place. In those cases, the surge to lower rates wasn’t quite as epic. But for lenders who kept the same rates intact all day yesterday, there was a huge shift this morning, with the average lender improving by an entire eighth of a percent (0.125%). Moves of that size only happen a few times a year, and we’ve definitely gone entire years without seeing it happen at all.
The average lender was quoting rates in the high 3’s this morning–mostly in the 3.75-3.875% range. As the day progressed, bonds bounced and multiple lenders adjusted rates back toward higher levels. Simply put, bond markets are conveying that all of yesterday’s improvements remained intact, but today’s gains were erased. If lenders aren’t caught up with that reality by this afternoon, they will be by tomorrow morning (unless bonds undergo a big move overnight).
Loan Originator Perspective
Bonds rallied sharply this AM, then sold off ferociously in after hours trading. It’s not unusual to see large losses follow rapid rallies. Today represented a great short term lock opportunity for those close to closing. It’ll be interesting to see tomorrow’s pricing after today’s huge swings. -Ted Rood, Senior Originator
The market usually feels some impact this time of year from the graduation season, and it’s understandable. People who have kids, or anybody who is related to people with kids in eighth grade, twelfth grade or seniors in college will be distracted for a few days. And if you count those graduating from pre-school too, then about 24% of the population (4/17) will have a graduation ceremony get in the way of homes selling.
Realtors are in that group too, so there are fewer agents on the ground working those sales.
But it should also mean the next few weeks will be fruitful with rates back in the 3s, and if the Fed lowers next week (unlikely but possible), we could have one heck of a summer!
Last year’s selling season was a little bumpy but was solid through May – and then dropped off once we got into summer and rates started rising.
The wait-and-see pattern kicked in as 2019 opened, but with rates having eased, we’re on our way now.
If mortgage rates will determine our fate, what can we expect for the rest of 2019? It looks like we should see mortgage rates stay in the low-4% range for now. The 30-year fixed rate is typically about 1.75% above the ten-year bond yields, which today is around 2.52%.
This is from the WSJ:
I’m going to guess that our pendings will peak again in May this year, but have a more gradual descent through the rest of 2019 than we had last year.
The relaxing of the average NSDCC list-pricing might help too:
NSDCC # of Actives / Avg. LP-per-sf
The MLS doesn’t support analyses once the counts get too high, so I don’t have any pricing for the Over-$2M category (but should be around $1,000/sf). The number of $2M+ actives has only grown from 453 on February 25 to 472 today. There are 98 pendings too!
Add at least 1% to the cost if you want a rate in the high-3s:
Mortgage ratesspiked quickly today, capping a 3-day run leading back up from the lowest levels in more than a year. Today’s move was by far the biggest and it leaves the average lender offering rates that are at least an eighth of a percentage point (0.125%) higher compared to most of last week.
Part of the reason for the size of this move is the size of the move in the other direction over the past two weeks. For instance, compared to 2-3 weeks ago, the average lender is quoting rates that are still an eighth of a point lower. In other words, the bigger the rally, the bigger the potential bounce.
Whether or not this bounce continues may have a lot to do with the week’s remaining economic data and events. Today’s data was almost universally stronger than expected and stronger data tends to coincide with higher rates. There are important economic reports on 3 of the 4 remaining days of the week with Friday’s jobs report being the biggest consistent market mover of any economic report.
Loan Originator Perspective:
Bond markets pulled back sharply today, as last week’s gains all but vanished. Stronger than predicted retail sales and manufacturing data prompted the selloff. The trend is now our enemy, time to lock those closing within 45 days.
Mortgage ratesmoved lower for the 6th straight day, bringing them very close to the best levels since late 2017. Perhaps more impressive (or telling) is the fact that rates haven’t even had a single “bad day” since March 1st. It’s impressive because it’s been an incredibly long winning streak (we usually see a day here or there with rates nudging a bit higher). It’s telling because it’s exactly what you’d expect to find as the backdrop for what has been the single best month for mortgage rates in more than a decade.
The past 2 weeks have acted as a forceful breakout after several months spent in an increasingly narrow range. Such breakouts often carry momentum, especiallywhen there are surprising economic updates or central bank policy at the scene of the crime (as there was with last week’s Fed announcement and European economic data).
Now we’re waiting to see how low we can go. It hasn’t made sense to bet on a bounce in rates so far, but that could change soon. In general, there are only so many winning days that can be strung together before the rates market blows off a bit of steam. When that happens, it will be important to note how big the bounce is and whether it lasts more than a single day. If it simply presents itself as a single, token day of correction, rates will likely be heading even lower.
Mortgage rates have continued their slide, and lenders should be offering fixed-rate loans with rates starting in the threes again, with little or no points! The new pendings are flowing, but we still haven’t seen a flood of new listings:
NSDCC Detached-Home Listings and Sales in March
The latest numbers are month-to-date, and will increase considerably with four business days to go. But the March sales will end up well under last year’s count, though the lower rates should help boost sales in April and May.
There are threes on the street:
For those who want to prepare for making an offer and would like to review our contracts, the California Association of Realtors have made available a sample copy with explanations:
It sounds like mortgage rates will be rangebound for the foreseeable future, which is good for buyers – but not necessarily for sellers. Without the threat of rates going higher, buyers will be even more patient:
It’s true that markets were already expecting a dovish Fed announcement. This created an asymmetric risk that the Fed would only be as friendly as they needed to be and that rates would have been positioned too low for such a thing. As it happened, however, the Fed was noticeably friendlier than most anyone guessed.
They dropped their verbiage pertaining to additional rate hikes. This effectively begins an era where rates will remain at current levels until economic data or other considerations motivate a change. Big news indeed!
They also dropped the reference to economic risks being balanced. The only way to be any friendlier to bonds would have been to say that economic risks had tilted to the downside (which can already be inferred from this change).
They also said they were prepared to adjust the balance sheet normalization policy if needed (i.e. they could start buying MBS again). Unsurprisingly, MBS liked this news and improved at a faster clip than 10yr Treasuries. Part of the 10yr’s problem was the big advantage the Fed’s announcement provided for shorter maturity Treasuries. In other words, traders were buying Treasuries, but most of the love went to the 2-5yr sector.
In the bigger picture, this is just another decently-sized green day for 10yr Treasuries, but reading between the lines, there’s a bit more to like. For MBS, it was easily the best day since January 4th. Not only that, but there’s a chance we look back at this as the day the Fed confirmed the end of the rising rate environment of the past 2 years. Granted, the past 2.5 months already did quite a bit in that regard, but it’s going to take a bit more time and stability to get comfortable with that idea.
Yes, buyers don’t mind the distraction when the market is uncertain!
But now that the holidays are over, the Chargers are done, more houses are coming to market, and mortgage rates are a half-point lower than they were three months ago, we are (over)due for a surge of activity.
There are two big NFL games on Sunday afternoon, which leaves Saturday wide open – and it has the best weather of the week.
No big games the following weekend, so if the weather holds out, buyers should be fully engaged – and if they aren’t, then that says something too.
It’s hard enough just trying to sell – if you have to schedule around the weather and other conflicts (graduations, for example), it narrows down the chances even more. But if we can anticipate opportunities, let’s take advantage.
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