April 10, 2014
Mortgage rates began the day without any hint of the drama that was to come. The first rate sheets of the day were little-changed compared to yesterday's latest offerings. Then markets of all shapes and sizes went on a fairly wild ride. Stock markets and currencies took part in a massive move toward safer-haven assets without any obvious catalyst.
While such herd-like movements can happen often in financial markets, they're rarely this big. Today's resulted in more than 30 points of weakness in the S&P at times. As far as mortgage rates are concerned, they fell at the fastest pace of the month to their lowest levels in over a month after lenders released better rate sheets in the afternoon--some of them more than once.
he most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) had been fairly well split heading into today between 4.375% and 4.5%. Today's move was big enough make 4.375% the higher end of the range, with 4.25% quickly coming back into view for many lenders. Adjusting for changes in closing costs, rates fell 0.08% today.
Will it continue? There's never any way to know what tomorrow brings for financial markets, only generalities about risk vs reward. Those who do a good job of identifying risk/reward imbalances end up having the most successful hedge funds. But locking a mortgage rate is one decision based on a single facet of the market (whereas hedge funds, etc. will be heavily diversified in the hopes that their bad bets cost them less than their good bets earn). With that in mind, there are several good thoughts in the 'perspectives' section below.
It really boils down to personal preference, and there's no wrong answer right now. That said, if you choose to float on the back of these strong gains, set a limit for yourself as to how much rates would have to rise before you'd lock to prevent further losses. Then be prepared for markets to turn right back around and head to lower rates, seemingly to spite you and you alone (because that's just how it works sometimes!).
Loan Originator Perspectives
"Well, we seem to have broken some barriers and the move lower today is strong. At the bare minimum, we will not see all the gains today passed along to consumers and simply holding this ground tomorrow would lead to further improvement for consumers. Floating seems like a low risk, high reward possibility." -Brent Borcherding, Capital M Lending
"Bonds are in rally mode!! It appears we can be headed into a new trading range for rates. It would not surprise me to see 4.5% become the new high and 4.25% to become then new low. Floating has served us well and I would continue to do so into tomorrow. " -Manny Gomes, Branch Manager, Norcom Mortgage
"Rally on!!! Lender pricing is much improved today over yesterday. The rate sheets I am seeing are the best ones since early March! Anytime we get substantial improvements in a day, it is a good time to lock. I would definitely recommend those closing within a couple weeks to go ahead and pull the trigger today and take advantage of the current pricing. Sure, this rally could extend, but it could also go the other way very quickly. Remember, rates rise much quicker than they fall." -Victor Burek, Open Mortgage
"We rallied solidly today (despite a surprisingly strong weekly unemployment report) and rates dropped amid a pronounced stock sell off. Ten year treasury rates fell to levels last seen in early March. It's certainly tempting for borrowers to float new loans given our recent movement, as long as they (and their loan officers) are alert to MBS markets and ready to react when appropriate." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
"Stocks seem to be in correction mode and bonds benefit from the trade flows. This is happening despite the lowest unemployment claims in 7 years. Could be the beginning of the correction that some market experts have been expecting for a long time. This would certainly lead to lower rates and more qualified borrowers." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
Today's Best-Execution Rates
- 30YR FIXED -4.25- 4.375%
- FHA/VA - 3.75-4.00%
- 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
- Some mitigating factors had kept rates from moving too far out of a narrow range, including the uncertain impact of weather on recent economic data as well as geopolitical risk surrounding Ukraine
- As soon as investors can have more confidence that the incoming data is an accurate representation of economic conditions, we should see more willingness for rates to react accordingly, with weaker data helping keep rates lower and stronger data pushing them back toward January's highs.
- Barring surprises, even within the very narrow trend from January through March, we've seen a slight bias toward higher rates. It will take economic or geopolitical surprises to push back against that momentum.
- (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).