December 4, 2014
Mortgage rates recovered some recently lost territory today following a press conference with European Central Bank (ECB) President Mario Draghi. While domestic mortgage rates are several degrees of removed from European monetary policy, there's an undeniable connection. Many market participants expected more concrete action from the ECB, and expectations for that action have recently pressured US Treasury yields higher. When markets didn't get as much as they expected from Draghi, stock prices and bond yields sank.
The mortgage-backed-securities (MBS) that govern loan pricing tend to follow those broader bond market movements, but with just a bit less intensity. Today was no exception, and it allowed lenders to improve the costs associated with prevailing rates very slightly. Rates themselves were unchanged, with 4.0% still being the most prevalent rate for top tier borrowers seeking conforming 30yr fixed loans. 3.875% remains not far behind in terms of prevalence.
Tomorrow brings the important Employment Situation Report. This is always the biggest potential market mover of any given month when it comes to economic reports. Because the report is released at 8:30am, markets will have already seen whatever reaction they'll see by the time lenders normally put their first rate sheets out. Point being: lock now if you don't want to run the risk of losing any ground tomorrow. Those with longer-term outlooks who can afford some ups and downs would be within their rights to float, but that would be a tougher call if your lender had repriced positively this afternoon (and many have).
Loan Originator Perspective
"Once again, monthly payrolls are upon us. Historically, this report is the most important data we receive each month, but it has been much less impactful as of late. Investors seem to be paying much more attention to inflation data and the slowdown in Europe vs jobs data which has been remarkably strong all year. The recent pattern has been for rates to slightly worsen heading into the jobs data then rallying over the next couple weeks. That said, i favor floating all loans, and if you follow that strategy you should count on floating until at least Monday. If you do wish to remove all risk and lock today, then wait until as late as possible as some lenders have already repriced better and many more might as MBS gains are holding." -Victor Burek, Open Mortgage
"More treading water today as rates improved slightly. Details of potential QE in Europe gave us some support, but the big event remains tomorrow's November Jobs Situation Report. I locked one loan today as pricing met my client's target. Floating may not be quite as risky due to the EU news, but if you do float, realize that you could lose ground if we get a very strong jobs report. " -Ted Rood, Senior Loan Originator, MB Financial Bank
"To lock or not to lock, that is the question. Technicals favor floating, as we are trading below specific levels that would warrant more caution. The only downside is that unless employment data is a disappointment, the likely result will be a modest improvement to costs associated with rates rather than the actual rate. I am locking loans closing this calendar month as risk prevention, but floating into tomorrow seems intelligent. Tomorrow will be important prior to Fridays employment report. " -Constantine Floropoulos, Quontic Bank
"With the ECB decision in the rear view mirror we now have tomorrows NFP to factor when deciding to float or lock. As always if the numbers miss expectations bonds will benefit but the opposite holds true should the number come in strong. It is always a safer and more prudent move to lock ahead of the jobs report. " -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.0
- 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.
- European markets helped that process along and continue to play a prominent role in keeping US rates lower than they otherwise might be.
- For most of the Summer and early Fall months, rates held a narrow range of 4.125% -4.25% (essentially where the 2014 rate recovery has bottomed out) and finally broke to a 3.875%-4.0% range in mid-October. After correcting back to 4.125% briefly, November saw a calm, supportive trend that helped establish a ceiling. From there, rates trickled back down into the high 3's by the end of the month.
- 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).