March 14, 2014
Mortgage rates managed to log another day of improvement today, this time more modest compared to yesterday's big move. Rate sheets were best in the morning, but deteriorating conditions in the secondary mortgage market during the day led many lenders to issue mid-day reprices with slightly higher rates. By the time those reprices are taken into account, some lenders are right in line with yesterday. A few are weaker, and most are just slightly stronger. When adjusted for changes in closing cost, rates are 0.01% lower on average, and the most prevalently quoted conforming 30yr Fixed for the best-qualified borrowers (best-execution) remains at 4.375%.
Friday's slight improvement marks the 5th straight day that mortgage rates have fallen--something they haven't done since early December. Interest rates tend to benefit from what most would consider to be "bad stuff"--Weak economic data, financial contagion, and geopolitical instability are just a few of their favorite things.
In the current case, the positivity is almost exclusively about the situation in Ukraine. In large part, the bond markets that most directly affect mortgage rates have eschewed their normal focus on economic data and simply chosen to 'follow the herd' as it were--keeping pace with the movements in broader financial markets.
Those movements are fairly simple in times like this. When news breaks, markets interpret it either as calming or inflammatory with respect to the situation at hand. If soothing, financial markets will move "toward risk," and vice versa, meaning that headlines that cause concern might results in stock prices and interest rates moving lower.
We got quite a large dose of this phenomenon yesterday after Kerry's tough talk on the Crimean referendum this Sunday. Not much new was added today, though earlier headlines from Russian Foreign Minister Lavro indicating Russia cannot and will not invade Eastern Ukraine did cause some of the weakness in bond markets, helping push interest rates a bit higher.
Monday is really anyone's guess. Almost everything depends on what happens with Crimea's referendum, and the several dominoes that depend on it. Will Russia simply say thanks and walk away if the referendum fails? What will the "serious series of steps" mentioned by Kerry look like in response?
These questions need to be answered before we can even begin to think about the impact on financial markets and interest rates. One thing's for sure though, and it's good to keep in mind throughout this geopolitically-charged event: much of the recent drop in interest rates is due to a geopolitically charged event! It's not something that can be counted on in the long term. While we have no way of knowing how long the benefit will last, we can be sure it won't last forever.
Loan Originator Perspectives
"Your risk tolerance has to be your guide for floating or locking as I think things are near 50/50 as to where we go from here. A Russian move to escalate sends them lower, and any sign that things will slow and rates rise. I feel like we just had a good week and would be taking gains, but looking for the opportunity to renegotiate with lenders should things improve later." -Brent Borcherding, Capital M Lending
"We have the potential for a big move in rates over the weekend once the Crimea people vote on joining Russia. I do feel there is much more room for rates to rise then fall at this point. If you didn't lock yesterday, today's pricing is just a little worse but I would still lock today. I do think the situation does get worse before it gets better but I feel you have much more to risk than gain at this point." -Victor Burek, Open Mortgage
"Nice gains from Weds to yesterday. Some tiny improvements but nothing special from Thurs to today. This could be the day to lock as the Russia/Ukraine situation could unwind this weekend and Monday could be a case of rates giving back all of the gains. Floating could payoff but we're not dealing with economic reports so I would rather lock in gains than see them evaporate." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
"Ukraine remained in focus today, as rates improved for a second day. We haven't broken through the low range of recent rates, but could IF the drama deepens. Not rooting for discord, but the upside is that it can benefit borrowers. Who knows what develops between now and Monday, but could do worse than floating short term." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
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).