January 29, 2014
Mortgage rates moved significantly lower today after drifting higher during the first two days of the week. As was the case on Friday, today's rates initially benefited from further weakness in equities and emerging market currencies. The afternoon saw a paradoxical move into even better levels after the Fed stuck to their tapering script, further reducing the amount of Treasuries and Mortgage-Backed-Securities it purchases each month by $10 billion.
Lower rates are a paradox because up until now, a reduction in the pace of bond buying has unequivocally suggested higher rates, all things being equal. But in the current scenario, the emerging market weakness mentioned above is theoretically being driven by tapering. So in that case, more tapering means more emerging market pain, which in turn has theoretically breathed new life into bond markets and mortgage rates. It's all a bit confusing because if you follow that logic, it means that mortgage rates were in a win-win situation today.
With today's gains, we now move down to 4.375% as the most prevalently quoted conforming 30yr fixed rate for ideal scenarios (best-execution). For some lenders, that rate remains 4.5%. Prospects for further improvements look to be as dependent on stocks and emerging markets as anything right now.
Loan Originator Perspectives
"Proceed with Caution. First, if you've been floating or just now starting the loan process, you've seen rates improve immensely over the last couple of weeks. There is never any shame in taking the benefits and locking now. That said, lenders have not passed along all of these guys, as of yet, and cautiously continuing to float for the next couple of days could pay some added dividends." -Brent Borcherding, Capital M Lending
"The much awaited FOMC statement hit today and as expected they tapered another $10billion in asset purchases. What wasn't expected, was for bonds to rally to their best levels since last year! As always, lenders are being extremely slow to pass along improvements. I would only advise locking today if you had to, if you don't float over night." -Victor Burek, Open Mortgage
"The Fed statement was as expected today, but the big news was improved loan pricing before it even hit. Gains were widespread as equities slumped again. The benchmark 10 year treasury hit its best levels since November. We're headed in the right direction, trend appears to be our friend again, at least for the moment." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
"Well rates have been looking better and better recently, but locking was the save call as this could have really gone either way in my opinion. Stocks selling off has helped as it must. More tapering is helping too. If this continues to snowball we could be setting up for the lowest rates since sometime last year. Renegotiating your locked rate is usually possible for a small cost that is more than worth it." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc. NMLS # 107434
Today's Best-Execution Rates
- 30YR FIXED - 4.375%
- FHA/VA - 4.25%
- 15 YEAR FIXED - 3.375%
- 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.
- Rates moved gradually higher into the end of 2013 and began to move gradually lower into the beginning of 2014, helped along by a weak employment report on January 10th. This report raised doubts as to whether or not the Fed would continue tapering asset purchases at the same pace, but it was ultimately a flare up in emerging markets and weakness in stocks that fueled bond-market positivity and allowed rates to hit 2014 lows on the same afternoon the Fed reduced asset purchases by another $10bln.
- With that in mind, further interest rate resilience in the face of tapering only looks limited by ability of emerging markets and equities to continue being weak.
- (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).