Mortgage Rates Face Big Potential Volatility Tomorrow

[Joseph Scorese]

Mortgage Rates Face Big Potential Volatility Tomorrow

Mortgage rates almost made it through the past two months without any major move higher (except those moves that were correcting the major moves lower following the China-inspired volatility in late August). They ruined their winning/stable streak yesterday as broader bond markets grew increasingly anxious over tomorrow's Fed decision. Apparently, bond markets only needed a day to express that anxiety as today has been extra calm by comparison. Unfortunately, that calmness began at the new, higher rate levels from yesterday afternoon. For most lenders that puts a conventional 30yr fixed at 4.0% for top tier scenarios.

But enough about today! The questions on everyone's minds revolve around tomorrow's Fed Announcement. Will the Fed raise its policy rate? What will the effect be on mortgage rates? At the risk of bursting any bubbles, neither question can be answered until after tomorrow's news. The TV and internet is awash in opinions on the topic--some of them seemingly passionate and well-reasoned--but these people are all guessing. This is a market scenario without a remotely similar precedent. Even the precedents being offered by much of the analysis are NOT in agreement about how tomorrow will end up for any given outcome. All we can really know is that the potential volatility is extraordinary, and it could merely be the beginning of a longer term move.

That means that anyone who's not interested in taking a massive risk in exchange for massive potential reward, should be locked already. While it's just as possible that rates could improve tomorrow (after all, if lenders already "knew" that rates were going higher, they wouldn't be wasting their time offering you lower rates today), the classic lock/float quip applies: it's better to lock when you should have floated than to float when you should have locked.