January 30, 2015
Mortgage rates moved lower today at their fastest pace since January 14th. Rates sheets moved well past recent lows and back to levels not seen since May 10th 2013. That was the day that the Wall Street Journal's Hilsenrath suggested the Fed was mapping an exit from stimulus, which sent markets into the tailspin that was effectively the prologue to the taper tantrum. It's amazing, or at least interesting to consider that asset purchases have now been fully phased and that a rate hike is a much more immediate threat, yet rates are back to where they were before markets really began adjusting for all that "stuff." That's the power of global economic turmoil and a troubling lack of inflation for core economies.
The specific result today is the greatly-increased prevalence of 3.5% as a conforming 30yr fixed quote for top tier scenarios. 3.625% is ubiquitously available, but again, keep in mind that these rates refer to top tier scenarios with 25% equity or more, and high credit scores among other things. The important part is the day-over-day change and the relationship to recent levels. In other words, no matter what you were quoted in the past few weeks, if your scenario is the same, today's rates are better.
In terms of how to approach this rate environment, the analogy of the falling knife continues to apply. Time and time again since late December, any move toward higher rates has proved fleeting. That CAN end any time, but it hasn't yet. One common strategy for those that want to keep floating in the hopes of further gains would be to set a limit at slightly higher rates than today's quote and keep floating until that limit is reached. For instance, if you're being quoted 3.5% today, you could plan to lock if your rate rose to 3.625%. It's the same concept as a "stop-loss" employed by investors. Whatever you do, be sure to coordinate on your strategywith your originator.
For the knife-catchers out there, today is the best day in more than 20 months. No one could fault you for locking. Combine that with the fact that the end of the month tends to be a slightly better time for bond markets (which affect mortgage rates), and you can make a perfectly fine case for catching that knife--especially if you have a shorter term time horizon.
Loan Originator Perspective
"With the rally we saw this morning, the only way i would advise to lock today is if your lender gives a late day reprice for the better. That is unlikely with today being a Friday. The rate sheets i have viewed are improved over yesterday, but lenders havent passed along all the improvements. I continue to favor floating all loans." -Victor Burek, Open Mortgage
"The rally that won’t stop or will it? This is great for home purchasers and those seeking to refinance as well. I never would have thought rates in the middle 3s would ever make the rounds again, but here we are. Locking now is not a bad idea though a run to lower rates could continue. Judgment call based on risk reward analysis and the ability to lock quickly if the tide turns" -Michael Owens, VP of Mortgage Lending, Guaranteed Rate, Inc.
"I suggested floating yesterday and today that decision would be paying dividends. What should you do from here? I'm always an advocate of taking your improvement and locking, but I still think floating is the best option....for now. The 10 year treasury is at 1.68 and this may simply be a test below 1.7, but it could be the sign of a move much lower. Float but do so cautiously, and be ready to lock." -Brent Borcherding, brentborcherding.com
"Rates are solidly at the lows of the years today as bonds advanced further. Bonds are now at a point where profit taking may ensue. Lenders however have not been passing all the market gains to rate sheets so even if bonds pull back a bit we may not see a significant change to rates. Longer term I still see rates decreasing but we now need to be in guard and start locking loans closing in under two weeks." -Manny Gomes, Branch Manager Norcom Mortgage
"European bond markets posted robust gains today, dragging both US treasuries and MBS along for the ride. While today's rate sheets were certainly good, it appears there's still more improvement to come. I'm floating my new loans for the moment (with an eye on bond markets, of course) while locking those within 15 days of closing. It's a great time to be a borrower!" -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.5-3.625
- FHA/VA - 3.25
- 15 YEAR FIXED - 2.875
- 5 YEAR ARMS - 2.75 - 3.25% 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).