October 8, 2014
Mortgage rates put on quite the show today, bringing the crowd to the edge of their seats before knocking it out of the park. Home-runs these days don't travel quite the same distance they did in 2012-2013, but today's resulted in the lowest rates since June 2013--just barely edging out the lows seen on May 29, 2014.
The most prevalently-quoted conforming 30yr fixed rate is now officially in transit between 4.125% and 4.0%. The higher rate is still more prevalent, but the lower rate has taken market share aggressively among the very best scenarios at the best-priced lenders. Keep in mind that most lenders technically CAN offer 4.0%, but you might pay more up front. Our assessment of "prevalence" has to do with where the average sweet spot is on lender rate sheets in terms of the most cost effective balance of upfront cost and contract rate.
Today's improvement was all about the Fed. To make a long, complicated story only slightly less long and complicated, investors who trade the securities that dictate mortgage were concerned that last month's Fed Announcement would justify a move higher in rates. That speculation contributed to the increases in rates seen in the first half of September. The Announcement turned out to be a bit of a mixed bag, but not dire enough to push rates any higher.
From there a new round of speculation took hold. This time, market participants figured that the meeting minutes from that mid-September Fed Announcement would reiterate the "non-dire" implications of the Fed's stance on rates. As the release of those meeting minutes approached, bond markets have increasingly improved to the point that we were near the best levels of the year yesterday afternoon. After the 2pm release today, bonds--including the mortgage-backed-securities that dictate mortgage rates--moved to their best levels of the year. After beginning the morning in a more conservative stance, most lenders released new rates sheets reflecting the market improvements.
Loan Originator Perspective
"As I said yesterday, I felt strongly about floating and was hoping to merely see Treasuries hold their recent gains to allow mortgage rates a chance to get caught up. That's exactly what happened. At this point, there's no harm in cashing in those gains, but I don't think we've seen the last of them." -Brent Borcherding, brentborcherding.com
"What a day for mortgage bonds. They started the day to the downside then went into positive territory and once again went negative after the 10 year treasury auction results only to go positive once again once the Fed minutes were released. Big intra day swings like this makes me believe traders are trigger happy and may sell to protect recent profits. While rates can certainly improve from here I would favor a locking bias." -Manny Gomes, Branch Manager, Norcom Mortgage
"The morning losses have been erased following the FOMC statement. Lender pricing did open up better than yesterday but many lenders did reprice for the worse prior to the release of the statement. Tomorrow brings us the final auction of the week, and quite often bonds rally once the supply has been absorbed by the markets. Additionally, the trend toward lower rates remains intact, so i favor floating all loans overnight." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.0 - 4.125
- FHA/VA - 3.75
- 15 YEAR FIXED - 3.25 - 3.375
- 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.
- From a wider point of view, we're in limbo, waiting for the first significant move away from the narrow range of 4.125% -4.25% (essentially where the 2014 rate recovery has bottomed out).
- 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).