May 13, 2014
Mortgage rates moved lower today after an especially weak report on Retail Sales fueled demand for fixed-income investments like mortgage-backed-securities (MBS) and Treasuries. When demand for MBS increases, prices rise and yields (or "interest rates") fall. As such, higher MBS prices allow lenders to offer lower rates. Today's improvements bring rates a bit more than half way back to Friday's levels. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains split between 4.125% and 4.25%. Today's move equates to an effective drop of 0.03%.
Until today, the interest rate landscape was fairly clear in suggesting a move higher after the most recent move to 6-month lows. Surprising results in economic reports always represent something of a wild card, as does the bond market's willingness to react accordingly. Everything was 'by the book' today as far as the logical reaction is concerned. We'd typically expect weak economic data to help rates move lower, and this morning's Retail Sales data was weak indeed. That said, it wasn't enough to send the longer-term trend back in the other direction, but it has delayed the move higher.
It continues to be the case that the safest bet is to plan on the rate range being maintained until it's broken. With that in mind, the two important considerations for today are that rates haven't broken the range, and that they are fairly close to the lower end of the range. Those two ingredients have been a prelude to good lock opportunities so far in 2014.
Loan Originator Perspectives
"I still favor LOCK-ing as the greater likelihood and risk are to the upside until we break through the bottom of the range. If you have the opportunity to book these gains, I'd do so now." -Brent Borcherding, www.brentborcherding.com
"Even though we had a nice little rally in pricing today on the heels of a pretty weak retail sales report, I still have a bias towards locking in these rates for borrowers closing within 30 days. But, for those with a longer time horizon to closing, patience could pay off. Some potentially market moving economic data remains as the rest of the week unfolds so stay in close contact with your mortgage professional as lenders are never bashful when it comes to hiking rates when they deem it necessary." -Hugh W. Page, Sen. Mortgage Consultant, M.B.A. Capital Partners Mortgage
"Economic reports still carry some weight in bond markets and the brakes were put on a 2 day increase. Still favor locking at these rates near or at 6 month lows. Too little to gain by floating and with renegotiation options available why take the risk." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
"My call to float yesterday appears at the moment to have been the correct one. Retail sales disappointed for the month of April and this is important for the weather was not a factor in April as it was the previous months so maybe the consumer is not feeling as rosy as Wall Street believes. We now await inflation data which will set the tone for this weeks trading. If you floated I would continue to do so." -Manny Gomes, Branch Manager, Norcom Mortgage.
"Economic data here and in Europe helped bonds to rally this morning. Lender pricing was better than yesterday but as of 2pm est no lender has repriced for the better passing along the gains of the day. As always, lenders take their time passing along any improvements. We have no major reports being released overnight or in the morning. Unless your lender reprices for the better today, I would take the risk and float overnight." -Victor Burek, Open Mortgage
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).