December 9, 2014
Mortgage rates fell again today, bringing them very close to their lowest levels in more than a year and a half. US bond markets (including Treasuries and mortgage-backed-securities) continue taking cues from European bond markets where the benchmark 10yr yield just fell to a new record low.
While US Treasuries benefit more than mortgages, there was still enough of a spillover effect to push mortgage rates noticeably lower. Top tier rates for top tier borrowers are now getting back into the high 3's, with 3.875% being the most prevalent conforming 30yr fixed quote today. For the record, 4.0% is not far behind. 3.75% exists, but it's not common and may entail higher upfront costs.
There's not really much to be said about this strength in mortgage rates apart from the fact that "it's nice." It's nice that we're getting enough spillover from all-time low European bond yields and it will stop being nice whenever Europe turns a major corner. Earlier in 2014, Europe was merely a wet blanket keeping domestic rates lower than they otherwise would be, but as the year progressed, it's fair to say Europe has clearly dragged US rates lower.
Those are bigger-picture considerations though, and not likely to play out on a short enough time scale to be relevant to most borrowers' lock/float decisions. In that regard, one of the only tools at your disposal is to simply observe where rates are relative to recent levels and to where you began your process.
Loan Originator Perspective
"If you floated overnight, you should be seeing improved rate sheets thanks in part to the massive stock selloff in Asia overnight. If you are within 15 days of closing, you should go ahead and lock in your rate today. I will not be surprised to see bonds pull back a little ahead of tomorrows 10 year note auction." -Victor Burek, Open Mortgage
"Rates improved slightly, again, today. There seems to be little reason to believe rates won't hold at this level or move slightly lower still moving forward. The fact that European bonds are even lower than US bonds currently makes US treasuries very attractive at these levels. You'd have to see a significant increase in euro yields to think US will go higher, too, and initially you may even see US yields move lower as the Euro sellers become buyers in such an event. I'd feel comfortable floating with potential gain and a low risk for loss." -Brent Borcherding, brentborcherding.com
"Our trend of slow but steady gains stayed intact today as of early PM. US equities are taking a beating and strong bond markets overseas are helping us at the moment. Looks like rates have overcome Friday's jobs report, and are now trending lower. Borrowers close to closing may want to lock, based on current great pricing; those with time on their side, a responsive loan officer, and a bit of risk tolerance may consider floating." -Ted Rood, Senior Loan Originator, MB Financial Bank
"Rates continue to be suppressed thanks to continuing global issues most prominently driven by Europe. It appears that absent short term fluctuations that can create a whiplash higher this low rate period seems intact. Still, I would be cautious and be ready to lock in on a moments notice and if you've been floating and have experienced nice gains during that time and your closing is soon why not protect what you have now. No sense being greedy here." -Hugh W. Page, Mortgage Banker, Seacoast Bank
"Today's bond market activity was very bullish, however it never really transpired into a parallel rally for mortgage securities leaving today's rates sheets slightly improved from yesterdays improved pricing. With the reality of Eurozone issues still in play, and obvious concerns in connection with global economic worries connected with China, floating may work out to be extremely beneficial. Unfortunately, with the lack of commitment from mortgage securities to today's bond market rally, I would be hesitant to float. Loans within a 15 day closing timetable should lock into todays strength. 15-30 days should also consider locking in these gains based on improved costs. 30 days plus have enough time to play the game, but be cautious as the negative price moves occur quicker and larger as rates rise." -Constantine Floropoulos, Quontic Bank
Today's Best-Execution Rates
- 30YR FIXED - 3.875-4.0
- FHA/VA - 3.25-3.5
- 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.
- 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. After correcting back to 4.125% briefly, November saw a calm, supportive trend that helped establish a ceiling. From there, rates trickled back down into the high 3's by the end of the month.
- 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).