The Federal Open Market Committee, the group of Federal Reserve governors who determines the direction of our nation's economic policy, released their statement yesterday. While the policy statement did not offer any major surprises, they reminded us that the economic recovery will be slow and announced a new operation where they will purchase Treasury debt in the open market. This action was aimed at preventing the spread of fear in the marketplace.
After the Fed announced this decision, stocks sold off and benchmark interest rate moved significantly lower as another "flight to safety" poured into Treasuries.
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.
While mortgages definitely lagged Treasuries, mortgage rates improved again today. We are now seeing most lenders offer 4.25% on rate sheets and are even seeing a few more who are willing to go down to 4.125%. This rate will cost nearly 2-points at closing though. Again these rate quotes are only available to borrowers whose pricing is not subject to risk based adjustments. If you are seeking a 15 year term, they are in the 3.75% to 4.00% range.
We will continue to monitor conditions in the secondary mortgage market. If the environment becomes more supportive of another move lower in mortgage rates, we will be quick to alert. For the time being, if you are in no hurry to refinance, the risk of rates rising is minimal, so it might be worth it to wait to lock just in case rates go even lower. If your closing date is in less than 15 days, you should definitely lock your loan.