Mortgage Rates Hit One Month Lows. Time to Lock?
April 3, 2013
Mortgage rates improved at their fastest pace in a week, bringing most lenders' rate sheet offerings to their best levels since the first few days of March. In a continued break from recent tradition, markets largely ignored the European trading overnight and instead took cues from domestic data. In this regard, a softer than expected read on employment marked the jumping off point for a healthy rally in bond markets. Bond markets include MBS, the mortgage backed securities that most directly influence mortgage rates, and when prices improve, consumer borrowing rates decline.
As is typically the case, a single day of movement in rates--though positive--was not enough to change the prevailing 3.625% best execution (what is this?) rate for 30yr Fixed loans. Instead, the movement was seen primarily in the form of lower closing costs. That means that you're likely to see the same rates as yesterday, but with lower out of pocket costs or more lender rebate (or closing costs covered). Alternately, the improvement in cost may help some borrowers step down an eighth of a percent in rate vs yesterday with slightly higher costs (for example, 3.5% today would still cost more than 3.625% yesterday).
Today was the first of 3 days this week containing "big ticket" events with the potential to cause market movement. It was also the tamest of the bunch. While it's perfectly possible that the good times could keep rolling, that eventuality is largely a toss-up based on the nature of the remaining big-ticket events. From a purely quantitative standpoint, we can see that rates are at their lowest levels in a month and we can observe that these big-ticket events (European Central Bank tomorrow and Employment Situation Report on Friday) have been big market movers more often than not. With both of those things in mind, and without any regard for which direction markets head in the coming days, this presents one of the clearest arguments for locking that we've seen in some time.
Loan Originator Perspectives
"Great locking day today, and proceeding accordingly with clients to capture the rate dip while it's here. Especially ahead of Friday's jobs report which could reverse today's movement. " -Julian Hebron, Branch Manager, RPM Mortgage
"Chances are good rates will continue to improve. That said, there is no guarantee so I'm locking rates and will explore float down options if needed. Hopefully this is a move towards late 2012 rates, but if not this is the day to lock in the best rates in weeks. No reason to take any chances. If you didn't lock last year because you thoughts rates would go lower, remember what happened and lock now." -Mike Owens, Partner, Horizon Financial Inc.
"Pretty easy call. My advice to my clients is very simple, if within 20 days of closing lock today ahead of the payrolls report on Friday. I do believe we are near the beginning of rates moving lower but if non farm payrolls is close to expectations, we will lose some of these gains and might not get them back for a couple weeks. Thus my opinion to lock all loans within 20 days of closing." -Victor Burek, Open 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%
- 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).