January 24, 2014
Mortgage rates continued a strong move lower today, benefiting from a global sell-off in risk-related assets. What's a risk-related asset? In this case, it's a catch-all term for investments that carry greater risk and greater reward, such as stocks and emerging market currencies. When risk-assets get trounced, bond markets are often one of the safe-haven beneficiaries, and stronger bond markets mean lower mortgage rates.
In the current case, and indeed in most cases where there is a large tidal exchange across the risk spectrum, mortgage rates aren't able to fall as quickly as more direct beneficiaries like Treasuries. Still, they're falling. Most of the improvement has been in the form of lower closing costs for the same interest rates quoted yesterday, but some borrowers may be an eighth of a point lower today. 4.5% remains the most prevalently quoted conforming 30yr fixed rate for ideal scenarios (best-execution), but 4.375% is VERY close at several lenders. When adjusted for day to day changes in closing costs, rates fell an equivalent of 0.03-0.04% today.
While unexpected, the improvement in rates is certainly welcome. The question is whether or not it will carry over into next week. The other question is how much markets will even be concerned with what had been shaping up to be a big FOMC Announcement on Wednesday. If global markets continue in this same vein next week, the momentum could easily overshadow the Fed. The counterpoint and the risk is that such episodes of global risk-aversion and emerging market panic are not uncommon. They happen a few times a year. Sometimes the Eurozone crisis happens and sometimes things blow over. On the occasions where things blow over, rates tend to snap back higher fairly quickly.
Loan Originator Perspectives
"Another nice day for consumers floating their rates. I find it hard to recommend not locking today, especially if you are closing within a couple weeks. The rally could continue next week, but it seems like today is a great day to lock in and secure the recent gains. " -Victor Burek, Open Mortgage
"Good to see rates rally again today. Too early to say if this is the start of a larger move, or a momentary pause in the long term trend towards higher rates, next week will tell the tale. Not adverse to floating here, with a quick finger on the lock button, as long as you're aware that quick gains can evaporate equally quickly." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
"Yea for stocks tanking worldwide. Bad for our 401Ks and good for bonds and rates. I'll take the lower rates all day long. Since there is only the stock lever helping us, that could easily reverse course. If it does any gains will disappear. Locking even on a Friday makes sense to me as this is the best we've been in awhile. If rates continue a decline, then float downs and renegotiations will be available." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc. NMLS # 107434
Today's Best-Execution Rates
- 30YR FIXED - 4.5%
- FHA/VA - 4.25%
- 15 YEAR FIXED - 3.5%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- The prospect of the Fed reducing its asset purchases weighed heavy on interest rates for the 2nd half of 2013, causing volatility and generally pervasive upward movement.
- Tapering ultimately happened on December 18th, 2013. Markets had done so much to come to terms with it ahead of time that it essentially just confirmed the the 6 month move higher in rates, but didn't make for another immediate spike higher.
- That said, we should assume that we're still in a rising rate environment on average with scattered pockets of recovery providing clear opportunities to lock.
- The exceptionally weak employment data on January 10th provided on of these "pockets of recovery." There are two ways to approach these. More risk tolerant: set a line in the sand just slightly higher in cost than your current quote. In other words, this could be either the next .125% higher in rate or simply a few hundred dollars more in closing costs. Then commit to lock when your quote crosses above that line in the sand. Less risk tolerant: lock on the day of or day after any significant move lower in rates.
- (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario. There are many reasons a quoted rate may differ from 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).