February 25, 2013
Mortgage rates moved lower today by the widest margin in over three weeks. The faster-paced movement is courtesy of political tensions in Italy surrounding the country's elections over the past two days. Markets had expected a Bersani victory, which would be as close to a status quo as possible and seen as best for European stability. Instead, Berlusconi may have won control of at least half of the Italian parliament. Markets perceive this as a negative development for EU stability, and such negative developments were among the key contributors to all-time low interest rates in 2012.
Mortgage rates themselves, are several degrees removed from the sections of the market that most directly benefit from such "flights-to-safety," but they've nonetheless managed to far outpace any recent attempts to bounce back from the broader trend higher. Best-Execution for 30yr Fixed, Conventional loans is still hanging on to 3.625%, but borrowing costs for prevailing rates have fallen appreciably since Friday and many lenders are still in the process of adjusting rate sheets.
(What is A Best-Execution Mortgage Rate?)
While it's nice to see markets finally taking a swing in favor of lower rates, broader bond markets and European markets are going to have to remain panicked in order for mortgage rates to experience nearly the same level of benefit. That very well may turn out to be the case, but we won't know the final results of the Italian election until later tonight. Surprises and ensuing volatility remain possible in either direction. We'd say today's moves are promising, but require just a bit more confirmation before we'd soften up on the defensive stance.
Loan Originator Perspectives
"Italian election has resparked Euro drama. Most lenders have repriced better today, but MBS price justifies much larger reprice better. As always, lenders are slow to pass along improvement but quick to take away. We still have Asian and European markets that need to react to the news of the drama. I would recommend floating overnight and lets see if this rally can continue." -Victor Burek, Open Mortgage.
"Rates did improve today slightly. Thanks to an election in Italy, the European mess may be jumping back into the picture. 10 yr treasury is helping out with the lowest yields in a month. If we get a nice correction in stocks, then rates might make a run at pre 2013 levels. With that said. I'm locking everything. I think we could see things turn ugly again until the stock market takes a hit." -Mike Owens, Partner, Horizon Financial Inc.
"Ever since the 10yr Note yield dropped back below 2% last Thursday, mortgage bonds have followed suit with their own rally, which has helped rates improve to start the week. If this rally holds, the rate improvement will be about .125%. A welcome reversal of the up trend that has prevailed in 2013." -Julian Hebron, Branch Manager, RPM Mortgage.
Today's Best-Execution Rates
- 30YR FIXED - 3.625%
- FHA/VA - 3.25% - 3.5% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 2.875%- 3.00%
- 5 YEAR ARMS - 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates have risen moderately but consistently since hitting their all-time lows in September and October 2012.
- Regardless of global or domestic economic weakness, the subsiding fear of a disorderly EU breakup will continue to prevent rates from getting back to those lows.
- This is very likely to be the case unless a similarly panic-inducing event were to come into focus, or if a disorderly break-up regained the spotlight.
- Sequestration, negative growth, and generally choppy political and economic environments around the world DO NOT constitute that sort of panic.
- This is a "rising rate environment" until further notice, though pockets of recovery and consolidation can provide smaller-scale opportunities against the larger-scale backdrop.
- (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario. There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).