Mortgage rates were modestly lower today, and are now getting back in line with levels not seen in more than 20 months.  Only the last 3 days of last week were any better.  That said, the amount of improvement in the mortgage market pales in comparison to other parts of the bond market that are normally much more correlated.  For instance, 10yr Treasury yields moved 0.08% lower today.  Average mortgage rates barely managed half that. 

In general, the broader bond market is insanely volatile and insanely illiquid right now.  lliquidity refers not to an absence of volume, but to small numbers of buyers and sellers interested in transacting at any given price.  The buying and selling of bonds (which includes the mortgage-backed securities) moves rates higher and lower.  The more buyers and sellers there are, the easier it is for markets to hone in on a price and manage volatility.  The secondary mortgage market thrives on liquidity and price stability.  The more volatile bond markets are, and the harder it is to find a buyer or seller, the less valuable mortgage-backed-securities become relative to other, less tempermental investments.

The bottom line here is that with the massive volatility brought about by the European Central Bank's quantitative easing announcement, mortgages are suffering relative to Treasuries.  That's not really a bad thing when rates are moving lower.  It just means they're moving lower more slowly than their peers.  In fact, there's a bright side as well.  To whatever extent volatility can subside, mortgage rates have room to improve even if broader bond markets are staying flat. 

Before you get too excited though, it may well be too much to ask for markets to calm down quickly enough to notice that sort of advantage in mortgage rates.  In fact, volatility is a safer bet for now.  And as for now, that seems to be resulting in fairly tepid gains when rates are moving lower, but is offset by similarly tame weakness when rates are moving higher.  If you're aggressively interested in holding out for lower rates, there's some room for error here, assuming you don't mind setting limits and locking at a loss if markets move against you.  For less aggressive folks, or if you can't afford to lose any ground from today's quote, it's never a bad idea to lock when rates are this close to 20-month lows.

Loan Originator Perspective

"Lender pricing did improve overnight, but only modestly. Since rate sheets were released, MBS have improved so a reprice for the better is possible. If you plan to lock today, definitely hold off until later to see if lenders pass along the gains. My recommendation would be to float all loans over the weekend. I continue to believe what is happening in Europe will continue to push rates lower here in the U.S." -Victor Burek, Open Mortgage

"Mortgage Rates improved today after holding their ground yesterday. European yields are moving lower and US yields (mortgages) appear to be following them. I feel comfortable suggesting floating into next week, but as always, be prepared to lock." -Brent Borcherding,

"With much of the "excitement" of the ECB announcement of QE now out of the way it appears that perhaps markets will settle down and wait for direction. Bottom line is that rates are low and until we see some impetus (and the list of possibilities is long) that takes us in a certain direction rates will probably bounce around a tight range. I still maintain that with rates this low it makes sense to lock in short term closings. Floating with caution for the longer term seems okay for now." -Hugh W. Page, Mortgage Banker, Seacoast Bank

"We logged some decent pricing gains today, as bond markets continue to access the ECB's upcoming QE. It's nice to recover the last two days' losses. I'll assess my floating loans near the end of the day to see if it's time to lock. Locking new loans involves a client consensus, as always." -Ted Rood, Senior Loan Originator

Today's Best-Execution Rates

  • 30YR FIXED - 3.625-3.75
  • FHA/VA - 3.25
  • 15 YEAR FIXED -  3.0-3.125
  • 5 YEAR ARMS -  3.0 - 3.50% depending on the lender

Ongoing Lock/Float Considerations

  • 2015 began with a strong move to the lowest rates seen since May 2013.  The catalyst has been and continues to be Europe.

  • European bond yields trended constantly lower in 2014, thus playing a prominent role in keeping US rates lower than they otherwise might be.  Many feel that Europe will continue to slide until their central bank engages in US-style quantitative easing.  Some see this happening in early 2015.  In any event, we're looking for a turn in Europe, first and foremost, before worrying about the longer-term trend in bond markets being at serious risk of reversing.
  • It's impossible to know when Europe will turn a corner, and even then it's only the sort of thing we'll be able to observe in hindsight.  That means every head-fake toward higher rates runs the risk of developing into a longer term rise, even if those risks vary greatly in terms of probability.  Clients with longer term time horizons and who otherwise don't mind losing some ground in exchange for the chance at locking even lower rates are the only ones who should float.  Clients who must close by a certain date or who can't afford to lose any ground on rates should generally be locking even though the longer term trend has been in their favor for over a year now.

  • As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.'  Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy.  It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).