December 16, 2014
Mortgage rates fell decisively today, bringing some lenders back in line with rate sheets seen on May 22nd, 2013. That's significant because it was arguably the first day of the 'Taper Tantrum,' when markets began pricing in the effects of a reduction in Fed asset purchases. On a more quantitative note, it was significant because it was one of the most abruptly negative days in modern mortgage rate history--one of several that would be seen in the ensuing months.
Simply put, for more than a full year, borrowers and mortgage professionals would have been thrilled with the chance to go back in time to lock May 22nd, 2013 rates. In more than a few cases, now they can.
The most prevalently-quoted conforming 30yr fixed rate for top tier borrowers is now in transit between 3.875% and 3.75%. 4.0% is out of the question. Borrowers who didn't see their quote drop by an eighth (.125%) in rate, should at least be seeing meaningful reductions in closing costs (or increases in lender credits).
Perhaps the most optimistic thing about being back at these rates is that it occurs in the post-QE era. While it's true that the Fed is still reinvesting plenty of dollars into MBS, it's not as if we'll be hanging on every Fed speaker's word, looking for clues as to the future course of asset purchases. We're not at risk of the same sort of major shock we saw in May 2013--at least not from our own Fed.
But that doesn't mean we're not at risk. This move lower in rates continues to be "hungry" in that it has been fueled by an impressively big supply of negative global economic developments. Whenever that pace slackens, we can expect a pull-back in the rate rally. Between now and then, volatility is elevated. Higher risk/higher reward--probably not the sort of risk that most will want to take.
Loan Originator Perspective
"Global problems are creating a flight to safety trade where investors sell stocks for the safety of US treasuries. The global issues will not be solved any time soon, which should support mortgage rates preventing them from rising significantly. With all the headwinds the global economy is facing and with month, quarter and year end fast approaching, i favor floating all loans closing in more than 15 days. Short term closings should consider pulling the trigger today on locking to take advantage of the current pricing and prevent the chance of a short term correction." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.75-3.875
- FHA/VA - 3.25
- 15 YEAR FIXED - 3.125
- 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. This continues to serve as a reminder that prevailing beliefs about where rates will go won't necessarily be correct simply because they're the most prevalent.
- European bond yields have trended constantly lower in 2014, thus playing a prominent role in keeping US rates lower than they otherwise might be. Many feel that Europe will continue to slide until their central bank engages in US-style quantitative easing. Some see this happening in early 2015. In any event, we're looking for a turn in Europe, first and foremost, before worrying about the longer-term trend in bond markets being at serious risk of reversing.
- Much of 2014 could be considered "sideways to slightly lower" in terms of mortgage rates. All things considered, it actually has been a remarkably gentle drift lower. Things became less gentle in mid October when rates briefly broke into the high 3's. They came back for a more gradual, determined push into the 3's in December. Some of the late-year strength is being chalked up to an epic slump in oil prices. This drags inflation expectations lower, which is a net-positive for interest rates.
- 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).