Mortgage rates continued higher today, extending a troubling move up to the highest levels since early March.  Normally, movement in domestic interest rates is driven by economic data and inflation expectations.  This time around, neither of those quintessential indicators are showing much cause for concern.  Instead, it's European market movements that have done the most to push rates higher in the US for the past 2 weeks. Today, specifically, Europe's 10yr benchmark continued a 2 week push the highest levels since Mid January!  Rates in the US aren't weakening at the same pace, but are nonetheless being dragged higher.

Most lenders are now quoting conventional 30yr fixed rates of 3.875% to top tier borrowers.  Some are approaching 4.0% while a scant few remain at 3.75%.  As we discussed last week, this is a serious move higher.  At that time, we were able to observe that the long term trend toward lower rates has not yet been defeated.  After today's weakness, we've moved to the very edge of that long term trend and have yet to see any indication that rates will bounce back down.  That could happen at any time, but until it does, the best strategy is to lock loans as if that bounce won't happen.  Keep in mind that if such a bounce does materialize, it will make a lock decision seem like a very bad idea in hindsight, but consider if you'd rather have the frustration of NOT locking only to watch rates continue higher.

Loan Originator Perspective

"More red ink on MBS screens today, as rates rose again.  We've broken previous strong support levels, and the end is not in sight yet.  Floating borrowers need to honestly assess their risk tolerance from here.  Just because rates were lower a week or two ago, it doesn't mean they're headed back there soon.  A strong jobs report on Friday could take rates to levels last seen last November.  Let's hope it doesn't come to that, but it's safe to say the trend is NOT our friend for now." -Ted Rood, Senior Originator

Today's Best-Execution Rates

  • 30YR FIXED - 3.875%
  • FHA/VA - 3.75
  • 15 YEAR FIXED - 3.125-3.25
  • 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

  • 2015 began with a strong move to the lowest rates seen since May 2013.  The catalyst was Europe and the introduction of European quantitative easing.

  • It's a highly uncertain time for global financial markets.  On the one hand, some believe we're in the midst of a race among world central banks to devalue currencies and lower interest rates.  Others believe that the global economy is turning a corner and rates will grind higher.  That had been creating a lot of volatility, which made for uncertain fluctuations from day to day.  But those periods of volatility have been interspersed by utter indecision where rates are effectively drifting sideways with no conviction and no desire to get off the fence
  • With European QE having now begun, we're on high alert for a big picture bounce in European economic data, sentiment, growth, and rates.  The more it looks like such a bounce is taking hold, the greater the risk that domestic bond markets and mortgage rates will also experience a big bounce higher.  There was a possibility that the bounce occurred in February, but European bonds got back to the task of improving in March.  This helped calm the domestic bond market's move toward higher rates.  April's weak employment report helped solidify it.

  • Unfortunately, this didn't result in a strong move past the year's previous lows.  In fact, rates at home and abroad hit a floor of sorts and flat-lined.  They've begun moving higher at a quick pace, and we're once again forced to confront the possibility that this will be a bigger, longer-lasting correction.  Until such a thing can be ruled out, Locking makes far more sense.

  • 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, conventional 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).