March 31, 2014
Mortgage rates continued higher today, as part of a 2 day move following 5 straight days of improvement. Nearly all of that improvement has been erased and rates are now in line with the afternoon following the FOMC Announcement on March 19st. That leaves today with the second highest rates since January 9th. When adjusted for day to day changes in closing cost, rates moved 0.05% higher today on average. That leaves the most prevalently quoted conforming 30yr rate for top-tier scenarios (best-execution) well into 4.5%, with a few lenders now approaching 4.625%.
Mortgage rates are most directly informed by mortgage-backed-securities (MBS), which tend to trade with a high degree of correlation to US Treasuries. While MBS and Treasuries are edging back toward positive territory this afternoon (which would be consistent with rates staying flat versus Friday), the morning hours were not only weaker, but also volatile. Some lenders have offered modest improvements over morning rate sheets, but it hasn't put much of a dent in averages.
Volatility hurts mortgage rates every bit as much as falling prices in bond markets (as prices fall, yields--or interest rates--rise), and more could be in store by the end of the week. The focal point for the volatility will be Friday morning's all-important Employment Situation Report. It collides head-on with a rate environment that has been exceptionally sideways in the bigger picture. In other words, rates may be near their 2-month highs today, but the range over that time has been 4.375 to 4.5 for the most part. After extended periods of sideways movement in any financial market, there's more risk that the first departure from the range is bigger than normal.
Loan Originator Perspectives
"The recent trend has not been a friend of rate floaters. Despite worse than expected economic data this morning and very dovish comments from Mrs. Yellen, rates have not been able to recover any of the losses from Friday or this morning but we are off the lows. The direction of rates will most likely be set on Friday when we get the jobs data. Due to early morning weakness, lenders really hammered rate sheets so unless your lender reprices for the better today, I would float over night but be ready to lock early incase the ISM data doesn't go our way." -Victor Burek, Open Mortgage
"There is a lot of data out this week that will affect bond yields and pricing. Floating could be very risky especially after Weds ADP report leading into Friday’s jobs report. However, floating has not been a bad call lately." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
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 took 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.
- Barring surprises, even within the very narrow trend from January through March, we've seen a slight bias toward higher rates. It will take economic or geopolitical surprises to push back against that momentum.
- (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).