June 8, 2015
Mortgage rates were just slightly lower today, but only erased a small portion of Friday's move to 2015 highs. Friday notwithstanding, today's rates would be the highest since early November 2014. The average lender is still quoting conventional 30yr fixed rates of 4.125% on top tier scenarios.
Mortgage rates are closely connected to movements in the bond market, and global bond markets have been a scary place lately. At the center of the fear is the prospect that European interest rates may have already turned a long term corner after bottoming out in April. While European rates don't directly affect US mortgage rates, there is a domino effect, of sorts, that keeps them generally moving in the same direction, by varying degrees.
Today wasn't one of the days that saw a strong connection, but the opposite is true when we look at the last 6 weeks as a whole. In May, rates spiked quickly and consolidated (meaning the highs and lows got closer together) through the end of the month. Now in June, we've seen another quick spike higher and another consolidation. This time around, the cycle is happening faster, but the shape is the same.
Although past precedent never guarantees the future, the similarity of the patterns leaves the door open for a repeat performance. At the very least, it's a risk that we should continue to guard against. That means the risk of floating one's rate is greater than the reward. This has been the case since mid April, and it doesn't make sense to bet against it being the case until the trend has clearly changed.
Loan Originator Perspective
"After last week I sure was happy to see bonds trade in positive territory. Going forward one thing is for certain people are going to either be happy they locked or wish they floated. The market may have over reacted and sent yields higher than where they should be and getting to more normal levels may happen in the near future. Much like when you turn on the bath water if it is too cold or to hot you may over compensate in the other direction until you find the right temperature. Until we see how the market trades the next couple of weeks it will be hard to tell if the market over reacted or is we found a new normal for rates. In a market like you need to lock anytime you have an up day." -Manny Gomes, Branch Manager Norcom Mortgage
"I'm not sold on a rally just yet, but MBS did improve about 1/3rd of a % today. Of course, that's a drop in the bucket after last week's losses, but gains are gains. Folks who floated through last week's debacle now face the question of locking in today's marginal gains, or rolling the dice again. My pipeline is locked, I'll be discussing lock/float strategy with new buyers, but am not in float mode." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 4.125%-4.25%
- FHA/VA - 3.75
- 15 YEAR FIXED - 3.25-3.375%
- 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.
- It's a highly uncertain time for global financial markets. There is much debate over whether or not the global economy is turning a corner, thus justifying a widespread move to higher rates. That's made 2015 significantly more volatile than 2014 for markets. This means lender rate sheets may change appreciably from day to day, and sometimes even several times in the same day.
- Bottom line: European Quantitative Easing helped push global rates to all-time lows in April. Now, the big risk for mortgage rate watchers is that we might have turned a long term corner. That risk is being compounded by speculation about the Federal Reserve raising rates by the end of 2015.
- May and June have amounted to the 2nd major move higher bounce so far this year. Every time this happens, we have to consider the possibility that this will be a big-picture, long-lasting correction. Until such a thing can be ruled out, Locking makes far more sense.
- 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).