May 12, 2014
Mortgage rates continued higher today, adding to the corrective rebound from last week's 6-month lows. There were no significant events or news stories behind the move. The financial markets that underlie mortgage rate movement are simply in the midst of a correction--a fairly natural phenomenon that equalizes a previous imbalance. In this case, a strong move to the best levels in over 6 months is being met with a nominal correction to something just a bit higher in terms of rates. For many borrowers, the changes will only be seen in the form of higher closing costs with the most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remaining split between 4.125% and 4.25%, but now heavily favoring the latter. Today's move equates to an effective increase of 0.04%.
Locking has made good sense as rates have moved lower over the past several weeks, largely because we were approaching the lower end of a range that has been intact for more than three months. Borrowers who were inclined to float their rate into that strength would have ideally set a 'stop-loss'--a line in the sand at slightly higher rates, beyond which they'd lock to prevent further losses. In all but the most aggressive cases, today's weakness should be enough to trigger that sort of safety mechanism.
Loan Originator Perspectives
"The trend of the last few days have not been the friend of rate floaters. Not even the ongoing Ukraine crisis where 2 more regions voted for independence this weekend have been able to stop the trend. Tomorrow brings us the Retail Sales report which could definitely have an impact on the direction of mortgage rates. If the report is stronger than expected, the recent trend should continue while worse than expected results could stop and maybe reverse the trend. That said, we are much closer to the bottom of the recent range then the top, so there is more to risk then to gain by floating. I would recommend everyone within 30 days of closing to go ahead and lock and remove all risk." -Victor Burek, Open Mortgage
"LOCK--We're moving off of the bottom of the multi month range, rates are significantly more likley to move higher than lower, day over day. Until there is data or an increased geopolitcal event to move them lower, natural momentum, in the short term, will be to see rates move higher." -Brent Borcherding, www.brentborcherding.com
"I haven't seen anything to suggest a change in sentiment for mortgage rates. We've been in a defined range for over 2 mos. We've bounced to the bottom of that range and we've now lifted off that bottom a bit. I think prudent risk management still implies a bias towards locking rates here. " -Hugh W. Page, Sen. Mortgage Consultant, M.B.A. Capital Partners Mortgage
"Bit of a slow Monday as rates stayed in line with recent ranges, although a tad higher than last week's lows. The absence of geopolitical or economic motivation kept us from continuing last week's rally. No compelling reasons to move sharply higher or lower at this point, we'll see what Ukraine Drama holds in store later this week, plus Thursday's important inflation data. Close to closing? Locking probably the right call. Have time to wait for some drama to improve rates? Consider floating, if you have a lender who is watching the market on your behalf!" -Ted Rood, Senior Mortgage Planner, tedroodteam.com
"We are once again heading towards the higher end of the rate range which has been intact all 2014. If the pattern holds true rates will reach the top of the range and then drift back towards the bottom of the range. Floating and following this pattern may serve you well. The inflation date released this week can change things so do be on guard." -Manny Gomes, Branch Manager, Norcom Mortgage.
"I think the decision is pretty clear cut to lock here. It really did feel like we'd break the recent range lower in yield/rate last week, but we didn't and 2.6 on the 10 year proved to be tough. We are slowly but surely making our way back to the middle of 2.6 - 2.8 land on the 10 year treasury yield. Pricing is still near it's best levels of the year so I recommend locking." -Steve Chizmadia, Mortgage Advisor, American Capital Home Loans
Today's Best-Execution Rates
- 30YR FIXED - 4.25%
- FHA/VA - 3.75-4.0%
- 15 YEAR FIXED - 3.25-3.375%
- 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, they've since settled into a flat range mostly consisting of 4.375 and 4.5%, but with occasional forays to 4.25 and 4.625%
- The uncertain impact on the economy from the colder-than-normal winter weather as well as geopolitical risk surrounding Ukraine helped the range persist.
- While the bias had been generally toward higher rates, it reversed course in April and rates returned to the lower end of the range by May 1st. As the "weather effects" fall out of the spotlight, market participants are seeing a bit more organic weakness in the economy than they'd expected. The focus is returning to economic data to determine where we go from here.
- As of the second week in May, rates were as low as they've been since November 1st, certainly suggesting a break of the 2014 rate range, but still lacking confirmation from related markets.
- (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).