April 17, 2014
Mortgage rates moved sharply higher today on a combination of factors including strong economic data, developments in Ukraine, and prevailing market momentum. That momentum risked turning negative as soon as Monday, when rates ended their impressive 7-day rally. Rather than simply turn around and head the other direction, however, rates managed to hold mostly sideways until today.
Part of the resilience had to do with Geopolitical risk swelling earlier in the week. As we noted on Tuesday, such strength only lasts as long as the risk stays elevated.
"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."
As such, today's sharpest move in bond markets (which include the mortgage-backed-securities that dictate lenders' rates) came after Ukraine headlines suggesting solid steps toward deescalation of military involvement. Momentum was already slipping into negative territory after stronger economic data this morning. When economic reports are better than expected, bond markets tend to weaken, which pushes rates higher, all things being equal.
The net effect was a move back to 4.5% for most lenders as the most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution). It had been 4.375% yesterday, and some lenders may still be competitively priced at that rate. When adjusted for day-to-day changes in closing costs, today's rates are 0.06% higher.
Bond markets are closed tomorrow and only a few lenders will be issuing rate sheets.
Loan Originator Perspectives
"Economic data here continues to indicate an improving economy which is bad for mortgage rates. At the same time, it appears tensions are easing in Ukraine, also bad for mortgage rates. The bond market is closed tomorrow, but many lenders will still issue rate sheets and accept locks but their pricing will be padded. If you do not lock today, you basically should float until Monday. " -Victor Burek, Open Mortgage
"FLOAT--If you haven't locked already, there is a good chance the damage has been done. Rates worsen on the last day before a long weekend, this is nothing new. I'd wait to see what Monday brings." -Brent Borcherding, www.brentborcherding.com
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).