April 25, 2014
Mortgage rates moved lower today, reaching their best levels of the week. Slumping stocks and geopolitical concerns contributed to positivity in the bond market, and when bond markets improve (specifically "mortgage-backed-securities," or MBS), rates generally move lower. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains at 4.375% in most cases. While this is the same rate as yesterday, the cost to obtain it is lower. If we express that cost improvement in terms of rates, it comes out to a drop of roughly 0.03%.
When we talk about "geopolitical risk" moving financial markets, and consequently mortgage rates, the current focus is naturally on the situation in Ukraine. Markets have a tendency to assign too much importance to such events when it comes to motivating trading levels. It's not that the events lack importance, simply that they end up accounting for more of the change in rates than their economic consequences justify. This goes hand in hand with the events being relied on as the primary explanation for market movement at most media outlets.
If events in the Ukraine are the primary considerations this week, the only reason would be a lack of other substantive data for bond markets, as well as a lack of participation after a holiday weekend that kept many investors and traders out of the office. This can't help but change next week as we'll get both the FOMC policy announcement on Wednesday and the all-important Employment Situation Report on Friday. If events in the Ukraine are able to hold a candle to the domestic economic events, it won't be anything to be excited about as it would require things getting exponentially worse in terms of geopolitical stability.
All that having been said, geopolitical instability has clearly kept downward pressure on rates. It's impossible to say exactly how much, but we do know that the longer term trend is just now shifting from "sideways to slightly higher in rate" to "sideways to slightly lower." It's close enough to "flat" to confidently say we'd still be trending higher if not for Ukraine events. That's not the sort of market-mover we want to be hoping for on an ongoing basis, or at all for that matter. It's here though, and thus represents an opportunity while rates are as low as they've been in over a week.
Loan Originator Perspectives
"With potential market moving news next week, it would appear a good time to lock, and not take the chance of losing out on current market levels. " -Ira Selwin, Vice President of Secondary Marketing
"LOCK--If you're locking in the next 5 business days, you have to use history as your guide and look to LOCK today. What history? Well, historically rates move upward to the middle of a recent range the week of NFP (Friday, May 2nd). So, outside of a large event upsetting normal trends that is the greatest likelihood. If you're looking toward Ukraine as that "large event" just know that its benefits to rates over the last 3 months has been very short lived." -Brent Borcherding, www.brentborcherding.com.
"As rates drift down to the bottom of this range we've been in since early Febuary, borrower's need to think seriously about protecting those rates. Recent history shows we'll be heading back to the ceiling of that range at some point in the near term and a strong Employment Report next week could easily be that catalyst to erase recent gains." -Hugh W. Page, Sen. Mortgage Consultant, M.B.A. Capital Partners Mortgage
Today's Best-Execution Rates
- 30YR FIXED -4.375
- 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).