Mortgage Rates Weaker at First. Some Afternoon Improvements
April 7, 2015
Mortgage rates began the day moving slightly higher, further adding to the bounce back from Friday's 2-month lows. This time around, however, the scope of the weakness was limited. It wouldn't be unfair to say that rates held their ground at just marginally higher levels for most of the day. Additionally, trading levels in underlying bond markets improved in the afternoon, prompting some lenders to release new, modestly lower rates. After the reprices, the average lender is still just a bit higher than yesterday, but the difference would only be seen in the form of higher closing costs. Quoted rates are the same as yesterday with most lenders offering conventional 30yr fixed rates of 3.75% on top tier scenarios.
In the bigger-picture, it's good to remember that rates are still in the lower part of a long term trend of improvement stretching all the way back to the beginning of 2014. That's a great place to be, but it also means that rates can periodically bounce higher without violating that longer term trend. Healthy corrections are part of the game. The only significant risk in this environment is a broad shift into a long term trend that leads rates higher, and nothing about the weakness over the past two days is currently suggesting such a shift.
Conversely, nothing about the past two days is suggesting an immediate revival of the stronger trend. The next salient move higher or lower is likely to be motivated by tomorrow's FOMC Minutes. Keep in mind that this isn't a new policy communication from the Fed--simply a more detailed account of the most recent meeting. Still, Fed Minutes can always cause significant market movement.
Loan Originator Perspective
"The weakness in the bond market continued this morning resulting in lenders worsening rate sheets. As of mid afternoon, much of the losses have been erased. With the favorable move in the bond markets, I favor floating all loans overnight. We have no data tomorrow morning, but do have a very important auction of 10 year treasury notes and the release of the minutes from the last FOMC meeting. Both of those events occur well after rate sheets are released. If you do plan to float, be in touch with your lender in the morning to evaluate your pricing." -Victor Burek, Open Mortgage
"Rates were slightly up on today's AM rate sheets. I (and doubtless others) are surprised at Friday's rally fizzling out so quickly. Traders appear to be content at our current range, and looks like it may take a watershed event to change that. Until something dramatic (Greek drama, horrific economic data) happens, I don't see a lot of room for rate gains. If my clients are happy with current pricing, I'll advise to lock and be able to rest easy!" -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.625
- FHA/VA - 3.25-3.5
- 15 YEAR FIXED - 3.00
- 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 was Europe and the introduction of European quantitative easing.
- With European QE having now begun, we're on high alert for a big picture bounce in European economic data, sentiment, growth, and rates. The more it looks like such a bounce is taking hold, the greater the risk that domestic bond markets and mortgage rates will also experience a big bounce higher. There was a possibility that the bounce occurred in February, but European bonds got back to the task of improving in March. This has helped calm the domestic bond market's move toward higher rates.
- It's a highly uncertain time for global financial markets. On the one hand, some believe we're in the midst of a race among world central banks to devalue currencies and lower interest rates. Others believe that the global economy is turning a corner and rates will grind higher. That creates a lot of volatility, and volatility is bad for mortgage rates. One result is that they have a slightly harder time keeping pace with movement in Treasuries. That can be good or bad, depending on which way markets are moving. The other result is that there really is no way to be sure that today's rates will be available a few hours from now. They could get better or worse, but the point is that there's more change and movement in the mortgage market so far in 2015.
- 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, conventional 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).