May 19, 2014
Mortgage rates began the day in roughly the same territory as Friday afternoon. Some lenders were in slightly better shape while others were slightly worse. Afternoon weakness in the secondary mortgage market led several lenders to reprice negatively, but even this didn't take rate sheets too far away from where they had been. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains 4.125%, but several lenders are better-priced at 4.25%. Most borrowers will experience today's move in the form of higher closing costs for the same rates quoted yesterday. In terms of effective rates, that rise in closing cost equates to a hike of 0.02%.
This week is slow in terms of events that might have a big impact on mortgage rates. Things begin to pick up a bit on Wednesday afternoon as the Fed releases the Minutes from its most recent policy meeting. These simply offer more detail behind the policy announcement that already came out on April 30th.
Mortgage rates are most directly affected by the trading of mortgage-backed-securities (MBS), which are in turn, closely linked with trading in US Treasuries and other fixed income securities ("fixed income" = an investor pays a big chunk of cash and and gets fixed payments with interest over time). Fixed-income or 'bond markets' are in a state of flux at the moment. The broad-based consensus that rates would move higher earlier in the year has evolved into a grudging acceptance (among traders, who are losing money as part of the process) that rates needed to move lower and could perhaps move lower still.
As of last week, rates reached the first major inflection point that most traders agreed was about how low a surprising drop in rates might go. An "inflection point" can be thought of as a horizontal line on the chart of interest rates over time that rates resist moving through. Thus they either bounce on that line, or pass through and become likely to bounce from the other direction. So far, we're bouncing. It's far from conclusive (in that rates haven't moved quickly higher by any means), but worth keeping in mind when deciding your personal lock/float strategy.
Loan Originator Perspectives
"Rate markets continued treading water today, with a stronger morning and weaker afternoon. There's not much economic data to influence markets this week, so floating borrowers may have time on their side. Ukraine's been out of the headlines for a while, but is certainly not resolved and has the potential to help rates. Floating always entails some risk, but for now, borrowers who are closing in over 30 days, may want to carefully wait." -Ted Rood, Senior Mortgage Planner, tedroodteam.com
"If you floated over the weekend, you didn't gain anything or lose anything as rates seem to be holding steady near the bottom of the new range. We have no important data being released tomorrow. I see no reason to rush and lock today, but I would encourage those within 15 days of funding to lock as that will get you the best pricing but I think it is worth the risk to float all other loans." -Victor Burek, Open Mortgage
"Still makes sense to lock in my opinion since we are close to the 11 months lows set last week. More chance of a bounce higher than lower so avoid that chance and lock." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
Today's Best-Execution Rates
- 30YR FIXED - 4.125%-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).