Happy Cinco de Mayo!
Mortgage rates fell a few more basis points yesterday as global economic concerns continue to lead nervous investors to re-allocate their funds into risk free benchmark Treasury debt. This "flight to safety" helped mortgage-backed securities prices tick higher which has allowed lenders to offer progressively lower consumer borrowing costs over the last four days.
A flight to safety happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return. To remind readers, as benchmark Treasury yields fall, prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which forces lenders to push mortgage rates higher.
Headline news has been the main driver of interest rate movements recently but we do have some economic data to discuss. However, instead of me summarizing the data, I think you should read THIS POST on MND Newswire. Not only does it cover today's economic data, it sheds some light on the underlying motivation for recent interest rate movements as well as provide some insight on what will influence interest rates in the future.
The flight to quality continues to move interest rates. Although lenders have been unable to move mortgage rates lower in step with benchmark Treasury yields, lender rate sheets did improve again today. The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range with a few more lenders offering 4.75% to well-qualified consumers. To secure a par interest rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you have lower FICO scores or higher loan to values, you should consider a government loan which offers the same rates as conventional with higher costs.
We have seen several days in a row of improving lender pricing thanks to the sovereign debt concerns with Greece and other European countries. At some point this is going to come to a conclusion which will probably result in the unwinding of the “flight to safety” trade that has benefited mortgage rates recently. Once that happens, we will see increases in mortgage rates. I continue to favor locking all loans closing within 30 days as I feel rates have very little room to continue to improve and the likelihood of a correction which increases rates is growing. Remember lenders push rates higher much faster than they let them fall. In addition, we have the Employment Situation report coming out on Friday. This is one of the most influential economic releases on the schedule and it can impact the markets in a big way… especially if it is better than expected. There is much risk in floating and very little to gain. It is always better to have locked when you should have floated than to have floated when you should have locked.