March 27, 2014
Mortgage rates moved moderately lower today, further improving on what has generally been a slow-paced week of gains. The yard-stick measuring that progress is the rate environment on last Wednesday morning before the FOMC Announcement and Forecasts sent rates quickly higher in the afternoon. Today's latest rate sheets are close to measuring up in some cases, though lenders have been more stratified in their pricing strategies into the end of the quarter (so some are close to Wed morning's levels while others are not, and everything in between).
In fact, "quarter-end" may have something to do with the slow, steady improvements seen this week. At the end of any given month, and especially at the end of the quarter, many market participants will be forced to adjust their allocations of certain securities. This may sound complicated at first glance, but just consider a 401k as one example. If it's comprised of certain funds that are based on certain financial indices, the people managing the 401k have to adjust its investments based on the changes in those indices.
There can be many more reasons that investors charged with managing large amounts of money are forced to re-allocate it at the end of certain cycles. While such movement of money won't overtly coincide with calendar events like it might surrounding the big Employment Report next week, it can have a pervasive, mild effect that causes rates to march to the beat of their own drum--moving gently lower when they otherwise might be moving higher or sideways.
Reason being, when the money is moving in to bond markets--and specifically into MBS (the mortgage-backed-securities that most directly affect mortgage rates), prices of those securities rise (more demand) and the yields (or "interest rates") fall. For some lenders, rates have already moved down to the next rung on the ladder this week (which is most commonly divided into .125% increments). Other lenders experience "falling rates" simply by a reduction in closing costs while the contract rate remains the same. For instance, if we transpose closing cost improvement to a hypothetical move in rates today's average improvement was only 0.02 percent. That leaves the most prevalently quoted conforming 30yr rate for top-tier scenarios (best-execution) at 4.5%, with a few lenders at 4.375%.
The conclusion is almost a verbatim reprint from yesterday: Today's improvement marks the 5th day in a row that rates have either held steady or improved. Those are the sorts of streaks that increasingly invite a correction of some size very soon. It could be tomorrow or it could continue for several more days. The point is that each day of improvement makes a correction more likely.
Loan Originator Perspectives
"All week I've been an advocate for floating, due to the potential to move away from the high side of the range and for a client to receive the benefits of lower rates and fees. Now, in my opinion, is the time to take those gains and LOCK. History says, we'll move upward to the high side of the range with NFP next week, and outside of unforeseen event I think that's to be expected once again." -Brent Borcherding, Capital M Lending
"Quite an odd day today. You would think following the pretty good jobless claims report we would have had a bad day, yet rates managed to rally. Early morning rate sheets were about the same as yesterday and as of 2pm est only a couple lenders have repriced better. We do have some potentially market moving data tomorrow which does make floating risky. I continue to favor locking once you are within 15 days of closing." -Victor Burek, Open Mortgage
"Another strong Treasury auction tells me the rally in bonds we have been enjoying may not be over yet. Are traders buying positions in anticipation the crisis in the Ukrain will worsen or is the bond market finally finding some of the money which leaves the equity market? Either way these things have a funny way of turning around really quickly. I am floating for now but will lock on any sign of weakness " -Manny Gomes, Branch Manager, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.5%
- FHA/VA - 4.00%
- 15 YEAR FIXED - 3.5%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- The Fed has stayed the course on their $10bln per meeting reduction in bond buying, though markets have handled it relatively calmly compared to the days of "coming to terms with tapering" in 2013.
- Rates fell significantly in January, leveled-off in February and have been taking choppy steps higher in March
- Some mitigating factors had kept rates from moving too far out of a narrow range, including the uncertain impact of weather on recent economic data as well as geopolitical risk surrounding Ukraine
- 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.
- That confidence is increasing in March with a strong jobs report and more aggressive forecasts on rate hikes from the Fed. Ukraine has offset that somewhat, but the general trend continues to be toward higher rates.
- (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).