April 11, 2014
Mortgage rates managed to hold on to yesterday's big improvements as markets held very steady by comparison today. If there's a slight bias, it's positive for bond markets, resulting in most lenders moving to just slightly better rates today. The movement is small enough that most scenarios will only see it in the form of lower closing costs. When adjusted for the drop in closing costs, rates fell by 0.01 today on average. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains split between 4.25 and 4.375%--newly acquired territory as of yesterday.
Even in the relative lack of movement today, we can still plainly see the same phenomenon at work. Stocks and bonds--at the very least--have been moving together in recent weeks, and especially during the past two days. It's important to understand what this does and does not mean though
First of all, mortgage rates will always be taking cues from bond market trading where lower yields typically correspond with lower rates. Looking back 30 years, stock prices and bond yields have moved in OPPOSITE directions (bond yields falling as stocks rise). That runs counter to conventional wisdom that investors "pull money out of one to put it in the other."
Interestingly enough, both observations are accurate. There can be a shift in allocation between stocks and bonds, but that won't affect all types of investors. It's also true that stock prices and bond yields do tend to follow each other quite often, provided you look at a small enough window of time. Looking at the past 30 years doesn't work at all, but the past 30 days have seen an exceptionally high level of correlation. Bottom line: they tend to move in the same DIRECTION at the same TIME, but the magnitude of their respective movement can vary.
The conclusion for mortgage rates is that weakness in stocks--if it continues--can help play a part in keeping rates as low as they are. It might even help them move lower, but ultimately, there's no hard and fast rule saying that a massive stock sell-off will result in an equally large move lower in mortgage rates.
Loan Originator Perspectives
"What a week for rates!! I have been holding on to my float stance and it has not proven to be wrong yet. I'm sure many investors and hedge funds managers are going to spend the weekend pondering the break down in equities. Mondays market reaction will hold the clues as to whether or not this sell off will continue. If it does keep floating but if equity markets bounce back rates could begin to suffer. " -Manny Gomes, Branch Manager, Norcom Mortgage
"Despite data that was bond unfriendly this morning, mortgage rates have been able to hold onto their recent gains mainly due to continued selling of stocks. We are right near the lowest levels we have seen in quite sometime, also known as the bottom of the range. Unless stocks continue to sell off, it is going to be difficult for rates to improve much from current levels. If you didn't lock yesterday, you should consider locking today if you are within 30 days of closing." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED -4.25- 4.375%
- FHA/VA - 3.75-4.00%
- 15 YEAR FIXED - 3.375%
- 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).