May 28, 2014
After tying the record for most consecutive days with no change, mortgage rates moved significantly lower today. The significance isn't due to the size of the move--as far as day to day changes go, there have been bigger. Rather, the impressive part of today's rally is that it occurred while rates were already effectively at the lowest levels in 11 months, further extending an already strong move lower over the past two months.
Through yesterday, rates had been giving the impression that the string of recent improvements was leveling-off and waiting for more important information on the horizon. In that context, today was an utter blindside. It wouldn't have been as surprising if rates merely began drifting lower ahead of those key events. They sometimes do that after leveling-off in such a manner, but today was anything but a drift.
The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) is already close to 4.0%. Some lenders are there already while others are offering substantially lower costs at 4.125%. After today's move, few lenders remain competitively-priced at 4.25%. For imperfect loan files, however, 4.25% is still a sweet-spot in terms of up-front cost vs contract interest rate.
While today's drop in rates is encouraging, markets will now be more sensitive to data and events that suggest a move in the other direction (such as a stronger-than-expected GDP revision tomorrow). Despite that sensitivity, the first move higher in rate after this rally runs its course isn't likely to be the biggest one. That affords some decision-making time to those inclined to float (but who also accept that they might be faced with the decision to lock at slightly higher rates than the previous day.
Loan Originator Perspective
"If you floated overnight, you should be thrilled today. Big rally in rates as the 10 year broke through resistance at 2.47. Anytime we get a big rally, it is hard to pass up the improvements. Without a doubt, if you are within 15 days of funding you should lock. If within 30 days, you also should strongly consider locking today." -Victor Burek, Open Mortgage
"We had a very nice rally today in mortgage rates and we’re looking at the best rates we’ve seen in the last 6 months. My inclination here is to lock in these nice gains as we can easily lose it fast over the short term, however, if you stay in close contact with your mortgage professional who is continuously monitoring the markets you will likely not be harmed too much by waiting to see if the rally has legs. However, as economic data rolls out be ready to pull the trigger quickly as a snap back worse in pricing can hit quickly." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
"Rates have trickled downward over the past couple of weeks, but the drop turned into a deluge today as pricing improved across the board. As of press time, 15 lenders repriced better from their initial rate sheets, and those who didn't surely will tomorrow. Days like this further confirm the need for originators to monitor MBS movement. The trend is now our friend, great time to buy or refi!" -Ted Rood, Senior Mortgage Planner, tedroodteam.com
Today's Best-Execution Rates
- 30YR FIXED - 4.0-4.125%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25%
- 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. From there, they settled into a flat range mostly consisting of 4.375 and 4.5%, but with occasional forays to 4.25 and 4.625%.
- While the bias had been very slightly toward higher rates, it reversed course in April and rates returned to the lower end of the range by May 1st. As the "weather effects" fall out of the spotlight, market participants are seeing a bit more organic weakness in the economy than they'd expected.
- Earlier in May, the focus looked to be returning to economic data, but that proved short-lived as prospects for European central bank easing overwhelmed some of the incoming data, pushing rates lower while data suggested a move higher.
- As of the third week in May, rates were as low as they've been since June 2013, more than confirming a break below the 2014 range.
- Looking back at recent movement, it's had a disconcertingly small amount to do with 'normal stuff' like economic data and Fed policy. Temporary and unpredictable factors currently account for too much of the movement to make firm bets on rates moving either direction in the short term.
- (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).