August 20, 2014
Mortgage rates were higher for a third straight day as financial markets continue a measured correction from last Friday's volatility. At that time, headlines concerning Ukraine destroying a Russian armored convoy caused rates to move to their lowest levels in more than 2 months. Since then, it's been a steady march back in the other direction.
Of the week's limited scheduled events, most haven't had any objection to a moderate move higher in rates. Today's release of the Minutes from the most recent Fed Meeting was no exception. In general, most analysts felt the details from the Fed meeting were slightly more upbeat than suggested by the Fed's official policy announcement on July 30th.
A more optimistic Fed is bad for rates as it implies an earlier potential rate hike and removal of other forms of accommodation. While the Fed seems to be in favor of leaving their portfolio of Mortgage-Backed-Securities (MBS) intact, they do plan on reducing their Treasury holdings after the first rate hike. This suggests upward pressure on Treasury yields, and MBS, which dictate mortgage rates, are heavily influenced by Treasuries.
The initial reaction to the Fed Minutes at 2pm prompted several lenders to revise rate sheets higher though not all lenders repriced. It wasn't enough of an increase to unseat 4.125% as the most prevalently-quoted conforming 30yr fixed rate for top tier scenarios. Many borrowers will still see the same rates today vs yesterday with the movement coming in the form of increased closing costs.
Loan Originator Perspective
"The FOMC minutes have not been friendly to rate floaters. Fed members point to the strengthening labor market which indicates hiking rates sooner rather than later. If you are within 30 days of closing, you should strongly consider locking today." -Victor Burek, Open Mortgage
"Fed minutes released today showed continuing inflation concerns, labor market strengthening, and further discussion on future rate hikes. No real surprises, but both MBS and treasuries reacted with a mild sell off. 10 year yields are now at 2.43% after touching 2.3% last Friday. Trend is no longer our friend! Until we get international drama or weaker economic data, locking sooner rather than later is likely the way to go." -Ted Rood, Senior Mortgage Planner, tedroodteam.com
"Minutes from the last Federal Reserve meeting released this afternoon appeared to be a bit more "hawkish" to bonds and we've seen some deterioration in mortgage pricing from it. More information is coming over the next several days that has market moving potential so I'm in favor of locking in short term closings for sure and biased towards locking longer term closings as well." -Hugh W. Page, Mortgage Banking Officer, Seacoast National Bank
Today's Best-Execution Rates
- 30YR FIXED - 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 hallmark of 2014 so far has been a disconcertingly narrow range in rates. Too many market participants bet on rates going higher in 2014, and markets have punished that imbalance with a paradoxical move lower.
- As of June, rates were officially lower year-over-year, but that's due to rates' path higher in 2013. The current path in 2014 remains sideways.
- European markets continue to play a nagging role in the background, generally helping rates in the US remain lower than they otherwise might be.
- From a wider point of view, we're in limbo, waiting for the first significant move away from the narrow range. A rally into late May stood a chance to act as this break, but rates have since returned to what were previously the lower limits of the 2014 range.
- 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).