October 29, 2014
Mortgage rates rose to the highest level in 3 weeks after today's Fed Announcement. The move was a two-part process with initial rate sheets being weaker in the morning and mid-day reprices (lenders raising rates) following the Fed. The pace of the movement was moderate, leaving 4.0% intact as the most prevalently-quoted conforming 30yr fixed rate for top tier borrowers, but 4.125% is now much closer than it had been. Many lenders are already there today.
It's important to understand that the Fed ending QE and today's rise in rates are not in a direct causal relationship. Market participants unanimously agreed that today would mark the end of the Fed's third round of quantitative easing (QE3) and that part of the announcement was no surprise.
It's also important to understand that, apart from the past 3 weeks, today's rates are the lowest in more than 16 months. The point is that mid-October was a bit of a wild time for the bond markets that underlie rate movement and today's higher rates are more to do with a correction to that wild move. In fact, bond markets ended up very little-changed from the trading levels in place just before the Fed Announcement. Bottom line, this was a move that was already in progress and today's volatility just made it slightly worse.
It has been and continues to be the case that the market's broad reaction to the end of QE will drive the next leg of momentum higher or lower in rates, and with today's noncommittal closing levels, it's too soon to tell which way we'll go.
Loan Originator Perspective
"It appears the markets were expecting the Fed to be much more dovish with their statement. Following the release, rates moved higher continuing the trend of the morning. Most lenders have repriced for the worse; but since that time, rates have managed to fight back to pre FOMC statement levels. If you missed the opportunity to lock prior to the reprices worse, i would definitely float overnight. Lenders always take away much more than the price decline warrants, so even at current levels lender pricing should be better." Victor Burek, Open Mortgage
"The Fed came out a bit more upbeat in it's assessment of the future economic picture while ending outright purchase of bonds and mortgage securities. Pricing worsened somewhat today but not as much as might be feared. This makes me ambivalent in my opinion on locking except for short term locks (less than 15 days) where I still think locking in is appropriate." -Hugh W. Page, Mortgage Banker, Seacoast National Bank
Today's Best-Execution Rates
- 30YR FIXED - 4.0
- FHA/VA - 3.5
- 15 YEAR FIXED - 3.25
- 5 YEAR ARMS - 3.0 - 3.50% depending on the lender
Ongoing Lock/Float Considerations
- The hallmark of 2014 has been a narrow range in rates. Too many market participants bet on rates going higher in 2014, and markets punished that imbalance with a paradoxical move lower.
- European markets helped that process along and continue to play a prominent role in keeping US rates lower than they otherwise might be.
- For most of the Summer and early Fall months, rates held a narrow range of 4.125% -4.25% (essentially where the 2014 rate recovery has bottomed out) and finally broke to a 3.875%-4.0% range in mid-October. It's too soon to tell if this is a brief window of opportunity or the continuation of 2014's very gradual improvements.
- 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).