December 15, 2014
Mortgage rates held steady today on average, but were slightly higher or lower depending on the lender. In either case, there hasn't been much movement from Friday's latest rate sheet offerings. That leaves 3.875% intact as the most prevalent conforming 30yr-fixed quote for top tier scenarios. 3.75% is very close and 4.0% is now clearly in 3rd place. 15yr loans haven't been performing as well recently--gaining less ground on good days and losing more on bad days compared to their 30yr counterparts.
The financial markets underlying mortgage rate movement continue coping with an abnormal set of variables. While there may not be any true "normal" when it comes to markets, there are certainly more 'average' times which account for 80% or so of past precedent. During those average times, interest rates take a majority of their cues from the incoming economic data. There were several economic reports this morning, but markets instead followed market drama overseas. This helped bond markets (which have the most direct effect on loan rates) battle back to Friday's best levels in the morning. Once overseas markets were closed, domestic bond markets began weakening again, preventing lenders from dropping rates any further.
As we discussed last week, recent rate improvements have been "hungry" for a steady stream of negative overseas developments. It looks like we're reaching some sort of limit here. Sometimes these prove to be short term limits as rates consolidate for another push lower, but they can also hearken a bigger bounce back. Markets may wait to make any bigger moves until after Wednesday's FOMC Announcement. That leaves limited reward for the risk of floating in the short term.
Loan Originator Perspective
"Mortgage Rates are still at the lows for 2014. I attempt to give advice based on the highest probability of rates over the next few days, and while I believe we may see lower rates ahead...maybe early in 2015, I think we're due for a slight correction. I think locking is the smartest decision today." -Brent Borcherding, brentborcherding.com
"We're back to treading water the last two days, with slighter higher rates today. I locked one new deal, and will be intently watching markets with a finger on the lock button for all floating loans. While we're "in the range" of recent rates, with stock market tanking, I'd like to see more strength in MBS. Floating borrowers need to determine their "stop loss" point with the LO's. " -Ted Rood, Senior Loan Originator, MB Financial Bank
"Stocks saw large price swings in both directions. Bonds were not able to greatly benefit when equities sank to the lows of the day. This an be an indicator bonds are getting tired and running out of steam. I would be locking in at these levels and taking risk off the table. We are entering the last few trading weeks of the year which can increase volatility. " -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.875
- FHA/VA - 3.25-3.5
- 15 YEAR FIXED - 3.125
- 5 YEAR ARMS - 3.0 - 3.50% depending on the lender
Ongoing Lock/Float Considerations
- The hallmark of 2014 has been a narrow range in rates. Too many market participants bet on rates going higher in 2014, and markets punished that imbalance with a paradoxical move lower. This continues to serve as a reminder that prevailing beliefs about where rates will go won't necessarily be correct simply because they're the most prevalent.
- European bond yields have 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.
- Much of 2014 could be considered "sideways to slightly lower" in terms of mortgage rates. All things considered, it actually has been a remarkably gentle drift lower. Things became less gentle in mid October when rates briefly broke into the high 3's. They came back for a more gradual, determined push into the 3's in December. Some of the late-year strength is being chalked up to an epic slump in oil prices. This drags inflation expectations lower, which is a net-positive for interest rates.
- 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).