March 19, 2013
Mortgage rates moved lower today at a less aggressive pace than yesterday. We noted some stratification between lenders which is relatively common when market conditions are volatile, and driven by unscheduled headlines. It's worth noting that some lenders are actually worse in price today vs yesterday, though the average lender is slightly lower in cost. This marks the 8th straight session without the average moving higher--something it last did on March 8th after the Employment Situation Report. Best-Execution 30yr Fixed rates are back to a sort of middle ground between 3.625 and 3.75%, but probably starting to favor 3.625% again.
(What is A Best-Execution Mortgage Rate?)
Bond markets, including MBS (the mortgage-backed-securities that most directly affect mortgage rates) continue to take heavy cues from the unfolding situation in Cyprus. EU creditors made a long-discussed bailout conditional on some of the bailout money coming out of individual accounts in Cypriot banks. Cyprus hasn't been too keen on the idea and an on-again, off-again parliamentary vote that was finally held today revealed that not a single lawmaker voted for the somewhat amended plan. The only alternative on the table at the moment is a default and possible exit from the Eurozone. Investors have sought the relative safety of US Treasuries among other things, as a result of the uncertain impacts this could have.
The rising tide for Treasury prices has been a moderate benefit to MBS, though it's not common for MBS (and consequently, mortgage rates) to keep pace with Treasuries when the latter is benefiting from these so-called "flights-to-safety." The FOMC Announcement tomorrow, along with Bernanke's Press Conference is the first time this week that markets will have something to think about other than Cyprus. There's a lot of uncertainty as to how everything will unfold. All we can know for today is that we're at the best rates in over 2 weeks, and there are no examples so far in 2013 where it hasn't made sense to favor locking vs floating in those situations. Could this be the event that finally breaks that trend? Absolutely, but we haven't remotely approached levels that would confirm that yet.
Loan Originator Perspectives
"MBS market continues its recent rally as EuroDrama unfolds. Lenders have passed along more of the pricing gains on today's rate sheets. Overall, we've regained about 1% in pricing (not rate) from the worst of recent rates. Nice to see the market finally acknowledge what we've felt all along: Europe is not fixed, and won't be anytime soon!" -Ted Rood, Senior Originator, Wintrust Mortgage.
"Although we do not expect much from the Fed tomorrow to move MBS, we are taking a defensive stance and locking in these recent rate improvements for closings within 30 days. We are still floating over 30 days out as more turmoil out of the EU could get us more improvement in the longer term." -Alan Craft, Loan Officer, Acopia Home Loans.
"If you have been floating since last week, you have picked up some gains. Lenders havent passed them all along though, imo. If Cyprus can solve the money gap and get the bailout, rates will worsen back to where they were last week rather quickly just bringing you back to where you were. I find this to be less likely. If you can tolerate the risk, i like floating here. The only solution i think at this point is for Cyprus to leave the EU which is going to cause issues and rates should benefit. That said, nothing wrong with locking today and taking advantage of the improved pricing." -Victor Burek, Open Mortgage.
"Could be getting interesting for us. Europe popping up on the radar again is good news for bonds and mortgage rates. However, the FOMC meeting could douse our hopes for continued momentum. Very hard to say lock quite yet as rates should come down a little further. Just be ready to pull the trigger quickly to lock in the gains of the last few days." -Mike Owens, Partner, Horizon Financial, Inc.
"Today is another small pocket in which locking loans that are closing soon is a good idea." -Jeff Statz Mortgage Advisor, Inlanta 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).