March 18, 2013
Mortgage rates moved lower today at their fastest pace since February 25th's Italian election stalemate. Today's move is also bigger than the entire week of sideways-to-slightly-lower rates last week. That said, the first week of March (the one that included the Employment data), is sort of a dividing line in 2013's general trend toward higher rates. Everything before that Thursday is lower, everything after is higher, and today's big move brings us right back to that dividing line. That means a move lower tomorrow would tip the balance definitively back toward 3.625% as a Best-Execution rate, though it shares roughly equal territory with 3.75% today.
(What is A Best-Execution Mortgage Rate?)
What's up with today's strong performance? In a word, Cyprus (read more). The Cyprus bailout was sort of evolving behind the scenes and off the radar compared to more prominent concerns surrounding Italy's election turmoil. But when the country's creditors announced yesterday that the heretofore uneventful bailout plan would include a levy on individual's bank accounts, things got serious fairly quickly. It's a tremendously relevant example of how European funding issues can impact mortgage rates in the US as well.
Consider the following: imagine you have 50,000k of savings in the bank. Now imagine the country in which you reside had investments with a neighboring country that nearly defaulted on its debt, forcing your country to take a hit on the value of those investments. Finally, imagine that the proposed cure for the economic contagion (or part of the cure) is for the government to take 5000k right out of your bank account. In not so many words, this is what's happening in Cyprus. This "sort of thing"--this safety and security of investments--has been an issue in Europe for several years and it's the reason that investors are willing to accept paltry (and even negative) yield returns in order to simply assure that they get their money back.
A lot of that money has flowed to US Bond markets, which indirectly help mortgage rates improve and/or stay lower than they otherwise would be. The coming days could be volatile for rates. We now have yet another European drama to keep tabs on in addition to Italian political developments. In addition to European considerations, there's the tremendously important FOMC Announcement and Press Conference on Wednesday.
Loan Originator Perspectives
"MBS market got a small boost today as EuroDrama reared its head in Cyprus. Not a full scale meltdown, but certainly a situation that bears watching. Surprisingly, rate sheets weren't significantly better than Friday's, but we've still picked up a decent chunk of ground. Still able to pay my clients' costs in most cases, that's a great thing!" -Ted Rood, Senior Originator, Wintrust Mortgage.
"Thought for the day..."Take what you can get and be happy." Rates always go up faster than they come down." -Bob Van Gilder, Finance One Mortgage.
"Although the market reaction to the weekend news out of Cyprus has been muted, I think this brings the EU back to the forefront. That should be beneficial for rates in the near term. I feel like this will provide a window of opportunity for lower trending rates going into the non-farm payroll report on April 5th. Cautiously floating is recommended." -Brett Boyke, Senior Mortgage Associate, First Centennial Mortgage.
Today's Best-Execution Rates
- 30YR FIXED - 3.75%, 3.625% coming back into view
- FHA/VA - 3.375-3.5% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 3.00%, 2.875% coming back into view.
- 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).