May 15, 2014
Mortgage rates kept moving lower today as European markets continued to provide an unexpectedly large boost in demand for domestic bond markets. Those markets include MBS, the mortgage-backed-securities that most directly affect mortgage rates, and higher demand pushes prices higher, which in turn makes rates lower. 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 0.02%.
We discussed the importance of yesterday's market movements in that it was 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 yesterday, and moved lower to 2.473 today. This consecutive move into even lower levels is consistent with the "range break" theme that we referred to yesterday as a positive development in the bigger picture.
While Treasuries don't dictate mortgage rates directly, their trends are almost always moving in the same direction. The mortgage market did a pretty good job of keeping pace with this big move in Treasuries earlier in the day, but faded somewhat in the afternoon. Lenders' best rate sheets were seen this morning, with almost all of them repricing to higher rates in the afternoon. Even after those reprices, rates are still lower than yesterday.
Loan Originator Perspectives
"Nice continuation of the rally in rates today would encourage many to keep waiting for more improvements. Technically, however, we have left one tighter range and ventured near the bottom of another wider range and failed to break through. My inclination here is to lock these gains in now and especially for those on a shorter closing time frame. I believe at these levels, without a break below the wider range the risk of a bounce higher still outweighs the benefits of another move lower." -Hugh W. Page, Sen. Mortgage Consultant, M.B.A. Capital Partners Mortgage
"The benchmark 10yr treasury note finally broke through resistance, but when you break one range, you always find another. Currently 2.47 on the 10yr is a floor of resistance and today it was bounced off of 3 times and was unable to break it. However, the rally in bonds have led to the best rate sheets we have seen in about a year. Hard to pass up these gains, so I am recommending my clients that are within 30 days of closing to lock up today and lock in the 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).