Mortgage rates have been operating relatively close to their all-time lows recently and today was no exception. The Fed raised some doubts as to how much longer that would be the case this afternoon when it released the minutes of its most recent policy meeting (from 3 weeks ago). The Fed questioned whether its mortgage-specific bond buying was having any ill effects. That’s only a vague hint of a threat, to be fair, but on top of that, market participants also felt the Fed did less than expected to telegraph any enhancement of its bond buying plans (something that traders saw as a stronger possibility for the upcoming Fed announcement in mid-December).
The market reaction was almost negligible in the bigger picture, but it looks like it would give a modest bump to rates if markets had more time to trade before the holiday weekend (Friday is technically a half day, but it’s about as close to an official market holiday as it gets without actually being one).
Since we’re talking about rates being near all-time lows, that requires some qualification.
Refis vs Purchases. Rates for refinances can be moderately to significantly higher than rates for purchases depending on the lender and the scenario. Add a “cash-out” designation to those refis, and rates are higher still. Much of this has to do with the adverse market fee that began phasing in during September. The fee specifically affects most conventional refis and raised rates by .125% -0.25% when the dust settled. Even before the fee, several major lenders were already offering lower rates for purchases
Single Day Lows vs Averages. If we focus solely on purchase rates, many lenders were actually still slightly better on August 4th, 2020. It’s only when we look at average rates over longer time horizons that we see “all-time lows” after August 4th.
Lender to Lender Discrepancies. The differences between lenders are much bigger than normal–or at least they can be, depending on which lenders you’re comparing. It can absolutely be the case that one lender is quoting 2.875% on a refinance while another is quoting 2.375% on the exact same scenario. A gap of this size defies logical explanation for most industry veterans. Even now, it’s not common, and it tends to come and go based on capacity constraints at individual lenders.
Lender Capacity Matters. Speaking of capacity constraints, they continue to have an outsized impact on lenders’ rate offerings. This is both good and bad. It makes rates higher than they otherwise would be (in a perfect world were mortgage rates were always the same distance from the rates implied by mortgage bond prices), but it also allows mortgage rates to avoid rising as sharply as the benchmarks they typically follow, such as 10yr Treasury yields.