April 28, 2016
Mortgage rates continued lower for a second straight day, ultimately making it back to levels not seen since last Tuesday. Today's improvements are partly an extension of yesterday's reaction to the Fed Announcement, but also acknowledge the end of this week's Treasury auction process. This often involves a slight artificial pressure toward higher yields beginning on Tuesday with the pressure being released after the week's last auction on Thursday afternoon.
Mortgage rates aren't directly linked to Treasury yields, but they do tend to move in the same direction by roughly similar amounts each day. Case in point, at the highest recent levels, 10yr yields were up to 1.94% and are back to 1.83% currently. That's roughly the same round trip experienced by mortgage rates with several lenders moving up to 3.75% earlier this week and now back down to 3.625% in terms of conventional 30yr fixed quotes on top tier scenarios.
Whether or not the good times keep rolling remains to be seen, but this is certainly the most hopeful the situation has looked in since rates began moving higher on April 8th. The most conservative strategy would be to lock in the gains seen over the past 2 days, but risk takers could benefit from floating as long as they accept the risk of being forced to lock a slightly higher rate if rates head higher over the next few business days. In any event, floaters should set a line in the sand to act as a stop-loss and resolve to lock at that level if rates move higher.
Loan Originator Perspective
"I continue to favor floating here to see if this trend will continue taking us back to the lower end of our range. Additionally, this will allow more time for lenders to pass along the last couple days of improvements." -Victor Burek, Churchill Mortgage
"Rates hung tough today, retaining yesterday's improvements while marginally adding to them. We're near last Wednesday's pricing, and approaching the moving averages. Part of the last two days' appeal may have been month end asset allocation, next week bears close scrutiny. Borrowers who floated for the past week have been rewarded, those still floating within 30 days of closing may want to consider their pricing goals. Too soon to say the "trend is our friend", but at least it's not our enemy at the moment." -Ted Rood, Senior Originator
"Not out of the woods yet, but we can see the light from here. Bonds and mortgage securities are fighting back into the bullish side of the line in the sand (1.84 for most), but 1.84-1.87 serving as a wormhole in my opinion, with us currently at 1.85 as of 2:00 PM. Month end trading certainly something to consider, along with next weeks employment numbers, tough call here, but momentum is leaning in our favor. " -Constantine Floropoulos, VP, The Federal Savings Bank
Today's Best-Execution Rates
- 30YR FIXED - 3.625-3.75%
- 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
- The Fed finally hiked on December 16th, causing fears of rising rates in 2016, but markets began the new year with rates moving surprisingly lower. Major losses in stocks and oil prices were part of the same trend of investors moving away from risk.
- After bottoming out fairly close to all-time lows in February, rates have seen only brief episodes of volatility in a low, narrow range.
- Some of the forces that had been helping rates are now at risk of reversing course. Namely, stocks and oil have been trying to break higher and European bond markets bounced near all-time lows.
- After being "lock-biased" for several weeks, a window of opportunity may be opening up after the Fed avoided sending any clear warnings about a June rate hike. We'll reassess the broader trend by the end of the week.
- 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).