After spending the first four months of the year bouncing around between 4.75% and 5.00%, the par 30 year fixed conventional mortgage rate finally fell to new 2010 lows this week. Although there were a few moments of volatility, mortgage rates generally rallied thanks to a flight to safety investor bias.
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.
There were no scheduled economic releases today. Stocks opened lower this morning but rallied after the S&P fell to levels not seen since the May 6th equity market sell-off. As stocks improved from recent lows, benchmark Treasury yields began to move higher and mortgage-backed security prices fell as a result. This forced lenders to reprice for the worse. Sometimes more than once. Heading into the weekend mortgage rates sit just a few basis points above the newly set 2010 rate lows.
Reports from fellow mortgage professionals indicate mortgage rates are higher than yesterday...after lenders repriced for the worse. The par 30 year conventional rate mortgage is still in the 4.625% to 4.875% range for well qualified consumers, however those rates will cost a few more basis points at the closing table (higher discount fee). 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've been floating for the past few weeks, your rate has greatly improved. Even after rates mortgage rose today, they're still close to record low levels. Stocks continue to play an influential role on the direction of mortgage rates. If stocks extend the rally seen today, mortgage rates will rise rapidly. If stocks fail to build recovery momentum and continue to slide, mortgage rates will inch lower. At this point many factors are seen motivating the market but the two main sources of direction are coming from financial reform (the politics of money and banking) and the EU debt crisis (again we're dealing with the POLITICS of money and banking). We put out a strong lock advisory yesterday and we're sticking to it.
Quite often people want to wait to see a clear bottom in mortgage rates, unfortunately we never know if rates are at their lowest levels until they've gone up. So by the time you realize mortgage rates aren't going any lower, they've already started rising.
I can sum up the lock/float debate with one question. If you were offered the mortgage rates we are seeing today, two months ago...would you have locked then? I believe everyone would answer yes to that question.
Have a great weekend.