May 14, 2014
Mortgage rates fell today as the European Central Bank looks increasingly ready for a new round of easing in June. More accommodative monetary policy in Europe makes European government debt more attractive. Germany is the benchmark for EU government debt and when demand rises, US Treasuries benefit as well. When demand for US Treasuries rises, the bonds that underlie the mortgage market also improve, resulting in lower rates. In short, there's a domino effect leading from anticipated easy money policies in Europe all the way to mortgage rates in the US.
Because they'll be the most direct beneficiary, European markets move the most at times like this. Treasuries move a bit less, and Mortgage rates a bit less than Treasuries. Even so, the improvement in bond markets was enough to push mortgage rates to new 2014 lows--also the best levels since October 2013. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) is now centered on 4.125%. Some borrowers will see the improvements in the form of lower closing costs or higher lender credits. In terms of effective rates, that drop in closing cost equates to a drop of 0.05%.
Today is important in that it's the first clear instance of the broader US bond market breaking its contained 2014 range. For instance, 10yr Treasury yields hadn't been below 2.57 at all this year, but fell to 2.525 at their lowest levels today. While Treasuries don't dictate mortgage rates directly, their trends are almost always moving in the same direction. This big break from a longer sideways trend is a positive development in the bigger picture. It still makes sense for those with shorter-term time horizons to favor locking, but those following the market over the longer now have one less reason to abandon hope for mortgage rates to return below 4%.
Loan Originator Perspectives
"After the break lower in treasuries today, we have the opportunity to see rates move even lower. I would float cautiously." -Brent Borcherding, www.brentborcherding.com
"If you held off locking then congratulations your gamble paid off. We've broken through the floor of the range we've been in for awhile giving us a little bit of room to improve some more before we hit the next floor of a wider range. But, the environment still seems risky to me and locking rates for those on a shorter (less than 30 days) time frame still seems appropriate." -Hugh W. Page, Sen. Mortgage Consultant, M.B.A. Capital Partners Mortgage
"We posted solid gains today in both mortgage and treasury markets. It's nice to break through some previous levels of resistance. All in all, we gained around .5% in pricing for most loans, which is a large move for a single day. At press time, 11 lenders had repriced better, likely more will follow. If you're close to closing, may want to book your gains, but if time is on your side, it may be worth seeing how far this rally takes us!" -Ted Rood, Senior Originator, tedroodteam.com
"I have been going against the grain and advising to float when may are urging to lock. The call to float so far has been the correct one. I am holding to my float call until the CPI data is released. If the CPI comes in tame we can see rates drop a bit further. If the data comes in above expectations be ready to lock quickly." -Manny Gomes, Branch Manager, Norcom Mortgage.
"After the reprices for the better we received, today's rates are the best they have been in quite some time. Can this rally continue? Who knows, but it sure is hard to advise anyone to pass up today's gains." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.125%
- 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).