April 15, 2014
Mortgage rates started the day in weaker territory, continuing higher for a second straight morning. Just after 10am, headlines regarding violence in Ukraine sent stocks lower and provided demand for fixed-income. The move out of stocks and into bonds is a common reaction to disconcerting headlines, and it's also common for Treasuries to soak up more of the benefit compared to MBS, the 'mortgage-backed-securities' that most directly influence mortgage rates. Increasing demand leads prices higher in bond markets, which translates to lower rates.
As such, improvements in MBS into the afternoon led many lenders to issue positively-revised rate sheets. For all intents and purposes, these rate sheets brought the average rate back in line with yesterday's latest levels. That means the most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains centered on 4.375%. Some lenders are close to 4.25% and fewer still are at 4.5%. When adjusted for day-to-day changes in closing costs, the average rate fell by 0.01%.
When it comes to bond market rallies that draw strength from geopolitical risk, the 'catch' is that they rely on that risk staying elevated if the gains are to persist. That means the longer Ukraine goes without breaking out into civil war, the harder it will be for rates to maintain this morning's gains without being acted upon by another beneficial force such as lackluster economic data. In other words, today's improvements present a good opportunity to lock.
Loan Originator Perspectives
"Bonds got a boost while equities lost some luster when news was released tensions resurfacing in Ukraine. The story there is far from over and the news will sway the market for months to come. While pricing could get better locking should you receive a re-price for the better today is a safe bet and may pay off." -Manny Gomes, Branch Manager, Norcom Mortgage
"The economic data here continues to be bond unfriendly as inflation came in hotter than expected, but Ukraine is drawing investor's attention. As news breaks about military action and gunfire in Ukraine, investors are seeking the safety of bonds. As of 2pm eastern, most lenders have repriced for the better. I would definitely lock today unless your lender doesn't reprice better as these gains could be quickly lost tomorrow if the unrest in Ukraine settles down." -Victor Burek, Open Mortgage
"We've seen this story play out before. Concerns surrounding the Ukraine push yields lower and within a day or two, the concerns decrease and rates rise. Could this time be different? Sure, but hsitory says take any gains you get from this action, LOCK, and be happy with the gift. It's going to take a lot more than this report to have rates break into new lows, we're on the edge, but we haven't broken through yet." -Brent Borcherding, www.brentborcherding.com
"Stocks and bonds working together to keep the lower rate trend intact. With geopolitical issues in Ukraine perking up again, stocks are weaker and bonds stronger. This could continue and with stocks already starting to hint at a correction the ball could start rolling in favor of still lower rates. Since we're near the lows of the year, locking is not a bad call and renegotiating your rate lower may be possible if rates do drop. " -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
- 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).