December 22, 2014
Mortgage rates are fairly hilarious today, though they're not hilariously higher or lower than they were on Friday. Rather, the entertainment comes from the fact that rate sheets across multiple lenders are as close to the previous business day's rates as any other day of 2014. That's incredibly uncommon, but it stands to reason given the fact that markets are fairly flat and market participants increasingly tune out on big holiday weeks. Perhaps the thesis here is that while we should generally expect muted movement on a day like today, the extent to which today's movement is muted goes beyond our wildest expectations. If lenders aren't essentially saying they've tuned out for the week, it's quite the coincidence.
Naturally then, last Friday's 3.875% remains firmly intact as the most prevalently-quoted conforming 30yr fixed rate for top tier borrowers. The closing costs associated with that rate are also unchanged in almost all cases. 3.75% is still available among some of the aggressive lenders or for borrowers who wish to pay a bit more up front in exchange for a lower monthly payment. Finally, several lenders are closer to 4.0% in terms of what they could offer without any discount points, but in those cases, some borrowers may prefer the monthly payment savings associated with paying some additional upfront cost. Most lenders can present multiple rate/fee options and let clients choose the one they prefer.
When it comes to weighing the risks of market movement in the coming days, the extremely light level of participation in financial markets means that it takes far fewer dollars to elicit changes in trading levels. So if a deep-pocketed market participant or two happens to be trading in such a way as to put upward pressure on rates, that pressure might be a bit more acute than it otherwise would be. In addition, lenders likely won't be eager to aggressively drop rates heading into the long holiday weekend. While markets and banks are technically open on Friday, it will be far from "business as usual."
Loan Originator Perspective
"The only loans i would consider locking this week would be if you are closing within 15 days. With this being Christmas week, many lenders will be short staffed which will cause delays to your loan. Do make sure that you will close within 15 days before considering locking to avoid having to pay costly rate lock extensions. As of about 2pm eastern time, MBS and Treasuries have moved to their best levels on the day, so if pulling the trigger wait until later today allowing lenders time to hopefully pass on the improvements." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 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).