April 7, 2014
Mortgage rates fell again today, bringing them to levels not seen since March 18th for many lenders. While there was no significant economic data today, rates benefited in part from the ongoing weakness in stocks, which are on pace for their worst 2-day loss since January. When investors are pulling money out of stocks, the bond market can be one of the beneficiaries, including the mortgage-backed-securities (MBS) that most directly affect mortgage rates. Increasing demand for MBS corresponds to lower rates, all things being equal.
Before Friday's important jobs report (which caused the first major leg down in this rate rally), mortgages hadn't fared too well during the previous 4 days. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) was approaching 4.625% on Wednesday. It moved quickly back to 4.5% on Friday, and is now already on the doorstep of 4.375%.
The week continues to be light in terms of scheduled events with major market moving potential. Wednesday brings a wild card in the form of the FOMC Minutes from the most recent meeting in mid March. These Minutes are separate from the official Announcement, and give markets a chance to review more nuanced information from the Fed meeting, whereas the Announcement itself only conveys the official, condensed text voted on by members.
Markets aren't expecting any surprises in the Minutes, but considering the day of the Announcement had been bad for mortgage rates, if the Minutes do hold a surprise or two, their ability to push rates higher will be limited by the fact rates already moved higher once as a result of this Fed meeting. That said, lenders have been reasonably aggressive in moving rates lower in accordance with recent market movements. There are good opportunities to lock based on past precedent to "level-off" after such strong 2-day moves.
Loan Originator Perspectives
"Rates continue to build on the gains from Friday, thanks in part to a sizable stock sell off. Many think stocks are long over due for a correction which would benefit mortgage rates. This could be the beginning of that correction, or stocks could rally tomorrow and rates would give back some of the recent gains. If you floated through the jobs report on Friday, that indicates you are a risk taker and I would float one more day to see if these gains can continue. Plus it gives lenders more time to pass along the improvements. But as always, if you like today's pricing nothing wrong with locking." -Victor Burek, Open Mortgage
"Our rally continued today in MBS Land as rates dropped further from Friday's improved levels. As of 2 PM Central, MBS Live reported that 17 lenders repriced better since rates opened. It's important to note that we haven't broken new ground here, but we're close to regaining pricing from early March. We'll take it!" -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
"The last three trading sessions have been very good for mortgage bonds. I believe there is more room for rate improvement before the bulls get tired. How much more improvement will depend on the equity market. Float with caution and be ready to lock should profit taking take place. " -Manny Gomes, Branch Manager, Norcom Mortgage
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).