January 16, 2015
Mortgage rates pulled back to slightly higher levels today as broader markets underwent a correction from relatively frenzied movement over the past few days. Yesterday we discussed how mortgage rates have a hard time keeping pace with interest rate benchmarks (like Treasuries) when the latter are moving lower much more quickly than normal. The other side of that coin is that mortgages tend to hold their ground better when those benchmarks are moving quickly in the opposite direction. That's what happened today.
The net effect was a moderately weaker day that left 3.625% intact as the most prevalently-quoted conforming 30yr fixed rate for top-tier scenarios. As of yesterday, 3.5% had been gaining some ground, but lost just as much today. Also worth keeping in mind is the fact that volatility typically results in lenders being much more stratified. In other words, what's true for one lender (or even 'on average') in terms of how their rate sheet changed from yesterday or during the day, may not even be remotely true for another.
For the sake of perspective, it's important to remember that, apart from the past 2 days, today's rates are still the best in over 20 months. While that's no guarantee that rates couldn't move higher next week, it does mean that this was a winning week despite today's specific defeat.
Loan Originator Perspective
"Mortgage Rates should have improved or at least stayed at the same level after a negative CPI came in as expected, right? It's not about US data, right now, and as I've been saying...as quickly as Europe's troubles can lead to our gains...those gains can be taken away. Right now locking, is the best and smartest decision. LOCK." -Brent Borcherding, brentborcherding.com
"Days like today are never welcomed, but we have to factor in all the improvements we have benefited from over the last couple of weeks, and really the overall bullish trend we are currently in for quite some time. Locking today does not make much sense to me as we should at the very minimum get some relief from today's selling next week. Selling a stock during a bloodbath is a losers trade, and the same bodes for locking in today. I would float until next week and see where we land. I wouldn't be surprised to see rates set even lower lows in the next couple of weeks, I'm banking on it." -Constantine Floropoulos, Quontic Bank
Today's Best-Execution Rates
- 30YR FIXED - 3.625
- FHA/VA - 3.25
- 15 YEAR FIXED - 3.0
- 5 YEAR ARMS - 3.0 - 3.50% depending on the lender
Ongoing Lock/Float Considerations
- 2015 began with a strong move to the lowest rates seen since May 2013. The catalyst has been and continues to be Europe.
- European bond yields 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.
- It's impossible to know when Europe will turn a corner, and even then it's only the sort of thing we'll be able to observe in hindsight. That means every head-fake toward higher rates runs the risk of developing into a longer term rise, even if those risks vary greatly in terms of probability. Clients with longer term time horizons and who otherwise don't mind losing some ground in exchange for the chance at locking even lower rates are the only ones who should float. Clients who must close by a certain date or who can't afford to lose any ground on rates should generally be locking even though the longer term trend has been in their favor for over a year now.
- 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).