February 3, 2015
Mortgage rates picked up the pace of weakness today, moving higher at their quickest pace of the year. That's the bad news. The good news is that today is still the 6th best day for rates in the past 21 months and many borrowers will only experience this spike in the form of slightly higher closing costs as opposed to a rise in rates themselves. Conforming 30yr fixed rates of 3.625% remain widely available for top tier scenarios. Up until yesterday, 3.5% was getting very close in terms of prevalence, but today's weakness changed that. It's still available, but in many cases, there could be upfront costs whereas there were none yesterday.
The move in mortgage rates is merely a small reflection of a much broader phenomenon in global financial markets. All types of asset classes have been moving in a coordinated way amid the increased volatility of late 2014 and early 2015. In general, there's a spectrum of risk. When investors favor risk, they sell bonds (which makes rates rise) and buy stocks (and recently, oil too).
Certainly debt negotiations in Greece have been a big source of information for that risk spectrum of late, and this has been an increasingly good thing for US bond markets as investors move to avoid risk. But this morning, European markets reacted (or overreacted?) to a favorable nugget of news regarding Greek negotiations. It's far too soon to tell if it will materialize into actual justification to pursue risk, but investors have been taking any reasonable opportunities to correct and consolidate against the bigger trend toward lower rates.
When it comes to lock/float considerations, the only other similar bounce this year resulted in 3 more days of higher rates. Granted, there were other factors in play at that time, but the point is that the corrections aren't necessarily limited to 1-2 day time frames. This is a fairly strong move higher and should be taken seriously. Rates could certainly continue to move higher depending on the rest of the week's economic data.
Loan Originator Perspective
"Rate markets lost ground today as ECB/Greek tension eased (at least for the moment). Whether this is just a lull in the march to lower rates, or the sign of a short term market bottom is the $20 question. I hope/think it's the former, we'll know soon enough. Floating borrowers need to have a lock strategy in place to ensure they don't get surprised should rates continue upward." -Ted Rood, Senior Originator
"Days like today are always anticipated after the recent rally we have experienced. Yesterday we looked to lock in, in anticipation of the sell off looming, I am not yet convinced that today's selling is the beginning of the end. That all being said, I am floating into today's weakness, anticipating some relief to come. Loans closing within 15 days should've been locked in, today's selling pressure warrants floating. I am a firm believer that we have yet to see the bottom of this rally or the end of the downtrend in rates." -Constantine Floropoulos, Quontic Bank
"Uncertainty abounds in this complex global economy and as rates have fallen we are bound to have reversals from time to time to give us something to worry about. It seems the trend is still for lower rates for a longer period of time but the complexity of it all means one should be very careful in how you view your interest rate options. If you like what you have now and you're closing within 15 days (maybe even 30) no one could criticize you for locking in and protecting these nice rates. Cautiously float longer term after assessing your risk tolerance." -Hugh W. Page, Mortgage Banker, Seacoast Bank
"Rates were a bit worse today or at the least cost more to obtain. Stocks extended their gains in a big way today and that took a little steam out of mortgage bonds and even more out of Treasuries. Both were do for some sort sell off after such a great run. Stocks will soon be do for a breather themselves and bonds should benefit at that point. For now I still favor longer term floating but do encourage short term locking. Keep an eye on the ADP report tomorrow. I expect the report to be weaker than expected which may help keep mortgage bonds from selling off further." -Manny Gomes, Branch Manager Norcom Mortgage
"Not a great day for the 10 year treasury and Mortgage Backed Securities. These days happen. We're still under a long term key level at 1.84% on the 10 year. So what's your plan? And what's your risk tolerance. The question is always to lock or not, but more importantly would you be more upset if rates went down by 1/8th or up by 1/8th if you didn't lock today. There's a lot of things going on in the world with Europe, oil, earnings season upon us, etc. If you're closing soon locking will take any stress out of the equation. If not closing for 30+ days we're still in the down trend, but things are always subject to change. Contact your loan officer for your specific rate lock guidance!" -Jeff Anderson, Loan Officer, Salem Five Mortgage, LLC
Today's Best-Execution Rates
- 30YR FIXED - 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).