October 1, 2014
Mortgage rates moved definitively lower today, restoring almost all of the ground lost during September's weakness. This has been a gradual process of improvement that began roughly 2 weeks ago, but today was the biggest victory by far. The most prevalently-quoted conforming 30yr fixed rate is now safely 4.125% again for top tier borrowers. It spent most of the last 2 weeks at 4.25%.
Whereas big market movements can often result from surprising news headlines or exceptionally strong/weak economic data, today's gains come courtesy of investors shifting their trading preferences from the 3rd to 4th quarter. Some market participants are forced to hold on to certain trading positions through the end of a quarter/month. We often see the release of a bit of pent-up demand (or lack thereof) at the start of a new month/quarter.
From here, volatility has every chance to continue based on the events scheduled over the next two days. It continues to be the case that it could take us in either direction, but clearly the current trend is positive. If that changes tomorrow, we'll know bright and early.
Loan Originator Perspective
"I've been consistently remarking that we've been on the edge of moving back in the long term trend channel towards lower rates. 2.5% on the 10 yr treasury has been at or near the deciding point, and after staying a few days in a row below 2.5%, today brought about a significant move lower. Lenders; however, have failed to pass along any/much of those gains so I would still float moving forward." -Brent Borcherding, www.brentborcherding.com
"Off to a good start in October. Although I always trend towards locking, you may have a little time to see if rates improve more, before we see any significant movement the other way that may put your rate at risk. I'd recommend locking (as I typically do), but can't blame you for floating, and don't think either is the "wrong" move." -Ira Selwin, VP of Capital Markets at US Mortgage Corporation
"I thought yesterday, we would start to see a slow and steady rise in rates ahead of the ECB meeting tomorrow and non farm payrolls on Friday. The opposite has happened and rates have managed a fairly decent rally. With the benchmark 10 year back in the down trend channel, i think it would be worth it to gamble to see if this can continue. Hopefully Draghi will give the markets what it wants tomorrow...if he disappoints we could lose this rally fairly quickly." -Victor Burek, Open Mortgage
"Float, Float , Float. Bonds rallied big today while the equity markets sold off. We may see bonds rally more tomorrow ahead of the NFP report. One thing for is for sure depending on the NFP numbers we may see rates drop to the low end of the rate range or we may see current levels as the new bottom. Either way floating into tomorrow before making the decision to lock may benefit you with better pricing." -Manny Gomes, Branch Manager, Norcom Mortgage
"Nice rally today to start off the 3rd quarter. While this could be an indication of a trend towards even better pricing in the near term I think it makes sense to take advantage of this improvement here and protect these gains for borrowers with closign dates in the next 15 days. We have potential fireworks in an ECB Rate decision tomorrow and the all important Jobs Report on Friday. If you're risk averse lock em up. If you can deal with volatility and potentially more risk than take a wait and see approach." -Hugh W. Page, Mortgage Banker, Seacoast National Bank
Today's Best-Execution Rates
- 30YR FIXED - 4.125
- FHA/VA - 3.75
- 15 YEAR FIXED - 3.375-3.5
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- The hallmark of 2014 so far has been a disconcertingly narrow range in rates. Too many market participants bet on rates going higher in 2014, and markets have punished that imbalance with a paradoxical move lower.
- As of June, rates are now lower year-over-year, but that's mostly due to rates' path higher in 2013. The current path in 2014 remains sideways, though it has recently approached (but not broken) the lows set in late May
- European markets continue to play a prominent role, generally helping rates in the US remain lower than they otherwise might be.
- From a wider point of view, we're in limbo, waiting for the first significant move away from the narrow range. While top tier rates moved up an eighth of a point in early September, to truly move out of the "narrow range," we'd need to see another .125% higher (best-execution at 4.375%)
- As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.' Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy. It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).