April 24, 2014
Mortgage rates held were mostly sideways today. In cases where rate sheets differed from yesterday, the tendency was toward just slightly higher rates. The move was small enough that this would only affect the up-front cost component of most quotes, meaning the actual interest rate would be the same. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains at 4.375% in most cases, though many lenders are better-priced at 4.5%.
For a second straight day, the markets underlying mortgage rate changes had a paradoxical trading session in that they moved in the opposite direction of that suggested by the incoming data. When economic data is stronger than expected, interest rates tend to rise--all things being equal. This morning's economic data fits that bill, yet rates went no higher.
The most popular explanation for recent paradoxical moves is that "it must be a Ukraine headline!" In fact, the unfortunate tendency is for market-watchers to observe fast-paced market movement, find themselves unable to explain it, and THEN go looking for a Ukraine-related headline that might explain the move. That's not necessarily a bad thing assuming that the Ukraine-related headline is indeed the thing causing the movement.
If you happen to encounter news that chalks up today's rate resilience or stock market weakness to Ukraine, take it with a grain of salt. The geopolitical situation is certainly a factor, but was more of a general consideration today without any clear-cut instances of cause and effect when it comes to markets. This can chance at any time, of course. It just depends on the headline. But the fact that such possibilities exist make floating riskier than normal.
Loan Originator Perspectives
"I have favored floating all week. If you followed that advice, you haven't gained anything or lost anything. Headlines from Ukraine seem to be picking up which could benefit mortgage rates. I still favor floating, but if you are within 15 days of funding, you might want to consider locking as that will get you the best pricing and eliminate any risk of rates worsening." -Victor Burek, Open Mortgage
"You have to start looking to be defensive moving into next week's Non Farm's Payroll report. I full expect that at least by Tuesday we see rates tick up to protect against that VERY important piece of data. I think floating one more night could pay dividends, but it gets extremely risky each day beyond that. " -Brent Borcherding, www.brentborcherding.com.
"When breaking news tensions in Ukraine are mounting once again, I belted out my usual Bond rally Cheer. I then noticed I was the only one cheering, for bonds did not budge on the news. With the economic data out of the way for the week the only thing which will boost the bond market at this point is an equity sell off. Float with caution and pay very close attention to stocks." -Manny Gomes, Branch Manager, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED -4.375 -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).