February 19, 2014
Mortgage rates began the day moderately lower compared to yesterday's latest levels, but the improvements didn't last. Bond markets including MBS (the 'mortgage-backed-securities' that most directly affect rates) began losing ground mid-morning and the weakness picked up steam after the afternoon's release of Minutes from the late January FOMC meeting. This prompted most lenders to issue negative reprices. The net effect would be that a borrower who had been looking at slightly lower costs this morning is now back in line with Friday afternoon's offerings. In some cases, that could affect the interest rate itself, but most scenarios would simply be looking at higher closing costs (or a lower lender credit, if applicable).
4.375% remains the most prevalently quoted 30yr fixed rate for the very best borrower scenarios (best-execution) though the weakness means 4.5% isn't far off. That said, 4.25% isn't far off either, for borrowers inclined to "buy down" their rate. When adjusted for day to day changes in closing costs, rates rose an equivalent of 0.02% today.
While the discrepancy between morning and afternoon rate sheets was noticeable, there was no detectable drama today in terms of the end-of-day average rate. We fell 0.02% yesterday and rose by the same amount today. As such, today's movement doesn't offer much by way of clues as to current market motivation. We've seen two major moves so far this year--a bigger move toward lower rates during January and a smaller move back in the other direction through the middle of last week.
We've been waiting for the next cue ever since. Optimists could say that today's weakness clearly doesn't make a case for another move higher being underway, and that would be justified. Pessimists could say they were hoping that the past few days of strength signified the start of a more positive trend--one that's now potentially defeated by today's weakness. Reality is probably somewhere in between in that markets are genuinely confused about what to do next. Unfortunately, this confusion could persist until we have a chance to see how the economy is faring in the absence of any uncommonly cold/snowy winter weather.
Loan Originator Perspectives
"It really appears that Treasuries (rates) have hit a short term floor, and if you're locking in the coming days, I believe now is an opportune time to do so. The last 2 days have seen improved pricing over the end of last week, and I would take the savings." -Brent Borcherding, Capital M Lending
"What looked like another positive day turned negative after the FED minutes were released. Some new insight was to raise short term rates sooner rather than later. This is the second part of the accommodation puzzle which includes buying bonds and keeping short term rates low for an extended period. The bond buying is being tapered and will end this year most likely. Raising rates hasn't even been on the radar to my knowledge, but popped up today. We'll see what happens but the economy has some headwinds to deal with. Rates could dip with another week employment report unless of course weather is to blame yet again. No reason to float in my opinion. " -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
"Lender pricing improved overnight, but following the FOMC statement much of the gains have been eliminated. If your lender hasn't repriced for the worse, I would definitely lock today if within 30 days of closing. If your lender has repriced worse, I would still lock if within 15 days. Longer term, I would cautious float to see if the data continues to disappoint but this is a risk." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.375%-4.5%
- FHA/VA - 4.0%
- 15 YEAR FIXED - 3.375-3.5%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- The prospect of the Fed reducing its asset purchases weighed heavy on interest rates for the 2nd half of 2013, causing volatility and generally pervasive upward movement.
- Tapering ultimately happened on December 18th, 2013. Markets had done so much to come to terms with it ahead of time that it essentially just confirmed the the 6 month move higher in rates, but didn't make for another immediate spike higher.
- Rates moved gradually higher into the end of 2013 and began to move gradually lower into the beginning of 2014, helped along by a weak employment report on January 10th. This report raised doubts as to whether or not the Fed would continue tapering asset purchases at the same pace, but it was ultimately a flare up in emerging markets and weakness in stocks that fueled bond-market positivity and allowed rates to hit 2014 lows on the same afternoon the Fed reduced asset purchases by another $10bln.
- Rates got an ostensible push lower from weakness in stocks and emerging markets. As soon as those moves ran their course, the rate rally bottomed out as well. Now we're tentatively waiting for the next move.
- (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario. There are many reasons a quoted rate may differ from our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).