February 26, 2014
Mortgage rates built on yesterday's strength and continued lower today. After lenders released rate sheet improvements in the afternoon, the average offering was right in line with the low rates seen on February 13th or 6th. While Monday's run up to 1-month highs briefly shifted the most prevalently quoted rates an eighth of a percentage point higher, the past 2 days of strength brings us back to a 4.375% Conforming 30yr fixed rate for the very best borrower scenarios (best-execution). Some instances of 4.5% may still be viable, but buying down to 4.25% becomes increasingly attractive if we hold here or move lower.
So in 3 days, we've moved from the highest rates in a month to 2-week lows, and did so despite a much stronger-than-expected report on New Home Sales today. Strong economic data normally pushes rates higher. Especially right now, with the winter weather being a popular excuse for weak economic data, it would have been fair to expect that a strong showing in today's Housing data to make things quite a bit worse. But it didn't happen.
To be fair to logic and reality, underlying bond markets DID, in fact, experience weakness after the Home Sales report, but were ultimately buoyed by other factors, especially the afternoon's strong 5yr Treasury auction. While Treasuries don't dictate mortgage rates, they do set much of the tone for "rates in general." Some market participants may be feeling like the exceptional auction is a clue to strong 'month-end' demand.
In bond markets 'month-end' is more than just the end of the month. It's a deadline of sorts, where investors are compelled to make certain trades for this month before moving on to the next. It's very much like children being required to clean up the toys they were just playing with before moving on to the next activity. Much more could be said about this, but the important part is that trends can emerge into the end of any given month where supply/demand imbalances come to light. If this is happening this time around, we'd know it if the strength continues tomorrow. The wild-card is Janet Yellen's rescheduled testimony with the Senate Banking Committee, which could easily overpower any month-end trading considerations, depending on what she says.
Loan Originator Perspectives
"Mortgage rates continue to improve on this weeks gains. Much of the improvement is coming later in the afternoon which makes it less likely that lenders will pass along the gains today. My advice would be to continue to float until tomorrow to see if the rally can continue. However, if you have been floating, you have picked up some nice gains and it is never a bad idea to lock them in." -Victor Burek, Open Mortgage
"If you are locking in the next week and a half, I would float the next couple of days with CAUTION, and presume that next week we'll see rates move higher before Friday's NFP. There is the opportunity for some more gains the next 2 days, but always be prepared to lock." -Brent Borcherding, Capital M Lending
"Finally gained significant ground in MBS today despite a remarkable/unbelievable pending new home sales report. 10 year Treasuries dropped below 2.7%, which had been the low end of our recent range. All in all, pricing for mortgage bonds gained about .25%, meaning higher lender credits or lower closing costs on most loans. We'll take it, now we just need to put together a few more days like today!" -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
"Can't complain with our rate movements lately. Sure would be nice to see a break even lower instead of the flirting we've been seeing. Next week still holds the cards and things may actually make a definitive move come next Friday." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc NMLS # 107434.
"Rates improved again today. This afternoon's strong treasury auction leads me to believe rates sheet may look even better tomorrow. If the recent momentum continues rates can improve further from these levels, but if they start going sideways from here locking will be the safe play." -Manny Gomes, Branch Manager, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.375%
- FHA/VA - 4.0%
- 15 YEAR FIXED - 3.375%
- 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.
- If anything, there has been some natural rebound against the nice move lower in January. Resistance to that move is low due to the fact that interest rates can't currently rely on weak economic data to help them stay lower (normally it would) because most of the weak economic data is being chalked up to unseasonably cold/snowy weather.
- (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).