December 26, 2014
Mortgage rates bounced back moderately today, erasing Wednesday's losses. Unfortunately, Wednesday's losses weren't very big compared to Tuesday's, which are still very much intact. That leaves the most prevalently-quoted conforming 30yr rates at 3.875% to 4.0%, depending on the lender and their holiday-week pricing strategies.
Most lenders rely on financial markets in order to keep loans flowing through their system. Most simply, lenders have to know what a particular loan is worth on the secondary market and how easily or quickly they can sell it in order to efficiently create rate sheets. During the big holiday weeks, financial market participation is a small fraction of it's normal self. Many lenders will opt to keep rates slightly higher than they otherwise would be because they don't have as clear a picture of how loans will move off their books. The cloudier that picture, the higher the risk for lenders. So by raising rates, they're essentially compensating themselves for taking additional risks.
Loan Originator Perspective
"As expected, today was a sedate day in rate markets. There was no significant data, and negligible movement for MBS. Next week may bring more of the same, as holiday period continues. The good news for lenders and borrowers is that we're about .75% lower on treasury yields that a year ago, with similar drops for mortgage rates. Floating always entails some risk, but we've been in a pretty narrow range for rates the past month, let's hope the long term trend lower continues!" -Ted Rood, Senior Mortgage Originator, MB Financial Bank
"Lock/float decisions should have been made prior to the holidays, so hopefully not many are considering locking today. With holidays, short staffed traders often don’t find willing buyers and all kinds of wackiness occurs. My clients were locked last week or are intentionally floating into Monday. Happy holidays." -Matt Hodges, Charlottesville Sales Manager, Presidential Mortgage Group
Today's Best-Execution Rates
- 30YR FIXED - 3.875-4.0
- 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).