Mortgage rates were at their highest levels since early October as of yesterday afternoon, and in general, have been in the throes of the most aggressive move higher since the 2013 taper tantrum. Much of the motivation has come from European markets. There is a domino effect, of sorts, leading from extremely large moves in Europe that ends up visibly affecting mortgage rates in the US. As such, it's no surprise to see that benchmark interest rates in Europe were at their long-term highs yesterday as well. It's also no surprise that when the pendulum swung the other way in Europe this morning, US interest rates were able to come along for the ride.
As is always the case when Europe is leading a market movement, US rates get a lesser version of the improvements. Fortunately, today was so big that the improvements were noticeable. Many lenders moved back to quoting conventional 30yr fixed rates at 4.125% as opposed to the recently more prevalent 4.25%. For borrowers whose contract rate remained the same, closing costs would be significantly lower today. In some cases as much as half a point lower (meaning $500 for every $100k financed).
Unfortunately, due to the fact that we were at the weakest levels of the year only yesterday, it's way too soon to assume that the good times will continue to roll. In fact, we could have several more days like today and remain very much at risk of a longer term move toward even higher rates. It's still safer to plan for that risk as opposed to an opportunity that has yet to materialize.
Loan Originator Perspective
"Bonds gained today, and the 30 year treasury auction saw strong demand. Benchmark 10 year treasuries regained their prior range, and are back under 2.4% as of press time. The $20 question is whether our improvement carries over to Friday, or is just a pause on an upward rate march. I'm going back to a neutral lock bias for the moment, but with a VERY watchful eye towards markets. Nothing wrong with floating borrowers grabbing today's gains, but at least we have the prospect of improved rates tomorrow, for a change." -Ted Rood, Senior Originator
"We are actually have a rally today!!!! It appears the optimism of a Greek debt deal was shot down today by the IMF who said no progress has been made in negotiations with Greece and the creditors. Following this announcement, both Bunds and treasuries rallied with Bunds making a larger move. With all the recent pressure toward higher rates, lenders are being extra conservative with passing along gains. Not sure whether this move is a head fake or the start of some kind of reversal. Only way to find out if it is a reversal is to float overnight. If you wish to remove all risk, then hold off as late as possible to lock today as not every lender has repriced for the better yet. With lenders being much more conservative and with no major data points tonight or tomorrow morning, i would float...but only float if you can afford to be wrong!" -Victor Burek, Open Mortgage
"Finally a day when we saw a large price move in a favorable direction. Mortgage bonds rallied today and got an extra boost from the strong treasury auction. Tomorrow does bring some market moving data which could help or hurt pricing. If you a risk adverse lock in one your lender re-prices for the better but if you like risk for more reward floating into tomorrow can make sense for this move may have some room to run." -Manny Gomes, Branch Manager Norcom Mortgage
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).