March 13, 2014
Mortgage rates moved significantly lower today after Secretary of State Kerry warned of repercussions for events in Ukraine. Crimea is set to hold a referendum on Sunday deciding whether or not to rejoin Russia. Kerry indicated, were the referendum to happen, that there would be "serious series of steps" on Monday carried out by the US and Europe. Markets reacted immediately, and maintained momentum for the rest of the day.
When geopolitical risk affects markets, the typical result is for safer, lower-risk assets to see increased demand. US Treasuries are a prime example of such an asset, and the mortgage-backed-securities (MBS) that most directly affect mortgage rates usually move in the same direction, though at varying speeds.
When demand for MBS increases, prices rise and rates fall, as was the case today. In fact, MBS saw their best gains since January 10th today, and lender rate sheets reinforced that. When adjusted for day-to-day changes in closing costs, rates fell by an equivalent of 0.07% today, and that's just the average. It was enough to bring the most prevalently quoted conforming 30yr Fixed rate for the best-qualified borrowers (best-execution) back down to 4.375% after a recent stint at 4.5%
Just as was the case with the first swelling of geopolitical risk at the end of February, the current episode is at risk of rapidly reversing if tensions ease. But as long as they don't, rates have an extra layer of insulation against weakness through the weekend.
Loan Originator Perspectives
"Floating has been very good to anyone who chose that route this week,
but we've seen this before, very recently. The Russian and Ukraine
drama saw us at, or even below these levels before only to see them
disappear overnight and rates rise. I'd strongly consider capturing the
gains of this week." -Brent Borcherding, Capital M Lending
"Headlines from Ukraine have sparked quite the rally today. Rates did
open slightly weaker thanks to better than expected jobless claims, but
then the headlines started to hit and rates started to rally. Most
lenders have repriced better with many repricing better twice. With the
large gains in pricing today, I think you should go ahead and lock.
The problem with floating due to geopolitical issues is that we can get a
solution at any moment. Unlike a economic report which is released at a
specific time. " -Victor Burek, Open Mortgage
"Thanks to the Russia / Ukraine drama we have a bond market rally and
better rates. This is likely to last into next week, but could also
wear off quickly. Floating could be a play here only because we could
see further improvement in rates. Caution is the key. I'm not a
gambler, but floating has not hurt this week. I hope this mess overseas
continues so we can ride rates down a little bit more. " -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
Today's Best-Execution Rates
- 30YR FIXED - 4.375%
- FHA/VA - 4.00%
- 15 YEAR FIXED - 3.375%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- Rates moved gradually higher into the end of 2013 and reversed course with a nice move lower in January 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.
- The Fed has stayed the course on their $10bln per meeting reduction in bond buying, though 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. That bounce has been as low as rates have gone so far this year. Now we're tentatively waiting for the next move.
- Because of the unseasonably cold/snowy weather across much of the country, market participants are hesitant to stray too far from the narrow range carved out during February (because it clouds the validity of the economic data).
- As soon as investors can have more confidence that the incoming data is an accurate representation of economic conditions, we should see more willingness for rates to react accordingly, with weaker data helping keep rates lower and stronger data pushing them back toward January's highs.
- (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).