Mortgage rates continued moving higher at a relatively brisk pace today. The historically normal sources of market guidance--like economic data and Fed policy--remain afterthoughts compared to the current flavor of the month (or "2 months" as the case may be).
The flavor? Potential rate cuts and easing measures from the European Central Bank (ECB). Back in the first week of April an German newspaper ran a story about the ECB modeling a €1 trillion program of asset purchases (like the Fed's own "QE"). That news and the anticipation of the announcement have had positive effects on interest rates at home and abroad ever since--ultimately playing a big role in mortgage rates hitting their best levels in nearly a year.
Now the actual announcement is coming up on Thursday. In addition, the following day brings another extremely important piece of data that could counteract or magnify the effects of the ECB Announcement. The diversity of potential outcomes is creating increased volatility in rates this week. Unfortunately, the last major swing was to 11-month lows last week, which essentially pulled the rubber band tight for a snap back this week.
Mortgage rates are already back to levels in line with early May. Those aren't awful by any means, but they're not quite as amazing as they were a few days ago. The most prevalently quoted conforming 30yr fixed rates for best-case scenarios (best-execution) are 4.125% and 4.25%. Some borrowers will see today's weakness in the form of higher closing costs vs yesterday. Expressed in terms of effective interest rates, the increase equates to 0.04%.
Will the pain continue tomorrow? As always, if there was a way to know where rates would be ahead of time, they'd already be there. As we discussed yesterday, risk increasingly outweighs reward when it comes to locking/floating.
Loan Originator Perspective
"LOCK--It's the safest thing to do heading into several days of data that
can move markets drastically. Employment reports and European Central
Bank announcements put are very likely to drive the markets in one
direction or the other over the next few days, and if you can't afford a
rise in rates, take what's available now." -Brent Borcherding, www.brentborcherding.com
"Rates have been on a 4 day losing streak ahead of key data and events.
Tomorrow we get a first look at the job picture with the release of the
ADP report. Of more importance will be the European Central Bank policy
statement on Thursday. The market is counting on the ECB to come
through with some sort of policy easing, and a rate cut alone wont be
enough. It is highly risky to float beyond today. With the ECB
decision on Thursday and the official jobs report on Friday, rates are
going to move one way or the other, and probably in a larger than normal
fashion." - Victor Burek, Open Mortgage
"In my opinion, I would strongly consider locking now to avoid any
potential losses. Recent gains are looking like they might not hold. If
we see some improvement after the Friday jobs report, then renegotiating
is a possibility, but floating leaves no options if rates continue
higher. " -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
"As we saw yesterday, market sentiment has confirmed we're back to a
rising rate environment. It showed today as rate markets sold off and
loan pricing worsened considerably. 6 lenders repriced worse (thanks,
MBS Live!) in 10 minutes this afternoon, and more are inevitable. The
tide that brought us lower rates is officially going out. Swimming
against it (hoping for rates to suddenly regain prior levels) is both
dangerous and foolhardy. Time to lock and avoid further losses." -Ted Rood, Senior Mortgage Planner, tedroodteam.com
"Weakness in mortgage pricing today further cements my view that locking
is the prudent move for now. We have big time risks the rest of the
week with the ECB Meeting on Thursday and the Jobs Report on Friday.
Too many things can go very wrong here and momentum is not in our favor.
Floating your rate through this week is not for the faint of heart and
not recommended." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.125-4.25%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.375%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- The Fed has stayed the course on their $10bln per meeting reduction in bond buying, though markets have handled it relatively calmly compared to the days of "coming to terms with tapering" in 2013.
- Rates fell significantly in January, leveled-off in February and took choppy steps higher in March. From there, they settled into a flat range mostly consisting of 4.375 and 4.5%, but with occasional forays to 4.25 and 4.625%.
- The bias had been very slightly toward higher rates, it reversed course in early April as expectations grew concerning European Central Bank easing. On several occasions, those expectations would go on to overwhelm domestic economic data--normally the main source of guidance for market movements.
- As of the third week in May, rates were as low as they've been since June 2013, more than confirming a break below the 2014 range. They remained in that range through month-end and grew more volatile ahead of the June 5th European Central Bank Announcement.
- Looking back at recent movement, it's had a disconcertingly small amount to do with 'normal stuff' like economic data and Fed policy. Temporary and unpredictable factors currently account for too much of the movement to make firm bets on rates moving either direction in the short term.
- (As always, please keep in mind that our Best-Execution rate always
pertains to a completely ideal scenario. There are many reasons a
quoted rate may differ from our average rates, and in those cases,
assuming you're following along on a day to day basis, simply use the
Best-Ex levels we quote as a baseline to track potential movement in
your quoted rate).