November 20, 2014
Mortgage rates improved today following weaker economic data in Europe. That data fueled demand in bond markets overnight, pulling US Treasury yields back to yesterday's lowest levels. The mortgage-backed-securities (MBS) that dictate loan pricing take heavy cues from that movement in broader bond markets. The trick is for the daytime hours to cooperate.
In other words, overnight gains in bond markets (meaning "lower rates") will only materialize into lower mortgage rates if those gains hold for a few hours in the morning. That's often up to the economic data calendar, and today was no exception. While the first round of data didn't do much to threaten bond markets, the 10am data caused quite a bit of volatility. While it did end the good times for today, markets held on to enough of the gains for lenders to avoid issuing 'negative reprices' (where mortgage lenders raise rates in the middle of the day).
The most prevalently-quoted conforming 30yr fixed rate remains 4.0% for top tier borrowers. The closing costs associated with that rate are now back in line with those seen on Tuesday, which was the best day in November at the time. 4.125% is still a respectable runner-up, but it at current levels, 3.875% is very close.
Loan Originator Perspective
"Another day trapped in the range. All in all the current range is a great place to be trapped in. The lack of volatility in best execution rates over the last couple of weeks has proven to be both a great time to float and lock. There is certainly a consolidation here that will pop, when it does you have to be ready for the volatility. Loans closing within 15 days should be locking. " -Constantine Floropoulos, Quontic Bank
"Another day of sideways trades today, as we treaded water, again. It's amazing how little movement we've seen, my pricing has moved less than .5% (to cost, not rate) for the past few weeks. All in all, at least we're stuck at attractive levels. It's going to be interesting when we break out, whether it's higher, or lower rates!" -Ted Rood, Senior Loan Officer, MB Bank
"Rates continue to be range bound. While the range is holding, my advice continues to be the same. Float all loans until within 15 days of funding, then pull the trigger. Weakness out of Europe appears to be the major driver of this range bound market and i do not see any European recovery in the near future. So a spike in interest rates here appears to be unlikely anytime soon." -Victor Burek, Open Mortgage
"Mortgage bonds remain in a tight sideways pattern. Bonds are bound to break higher or lower in the coming trading days. Depending on which direction the break occurs we may be quickly locking or popping champagne corks as we enjoy a dip in rates. Float carefully for now but do keep a close eye on the ten year treasury yield for signs of the break." -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.0-4.125
- FHA/VA - 3.5-3.75
- 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).