May 29, 2014
Mortgage rates began the day in even better shape than yesterday, but market volatility prompted most lenders to raise rates in the afternoon. That leaves today's rate sheets in just slightly weaker territory compared to yesterday, but still better than any other day of the year. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains at least as low as 4.125%, with some lenders closer to 4.0%. Many borrowers will see today's weakness in the form of higher closing costs vs yesterday. Expressed in terms of effective interest rates, the increase equates to 0.01%
As we discussed yesterday, the first move higher in rate following yesterday's strong move down wasn't likely to be the biggest one. Indeed that will now clearly be the case considering the modest 0.01% increase in effective rates. We can also keep tabs on the newfound strength by checking in with Treasury yields. While mortgage rates are most directly affected by Mortgage-Backed Securities or MBS, all sectors of longer-term fixed-income markets (which include MBS!) are sensitive to what's happening in the Treasury market. Mortgages won't always move lower or higher in the same way as Treasuries, but if the latter is potentially bouncing on a long term low, mortgage rates likely will be as well.
With that in mind, 10yr Treasury yields made it all the way down to 2.402 today. The previous "big deal" level--2.47--was broken yesterday. Before that, we would have been very happy to be at 2.47. By dropping so much lower than that, markets left themselves plenty of room for rates to bounce higher without altering the overall landscape too much.
The bottom line is that today's weakness was disconcerting today, but in and of itself isn't enough to conclude that we've seen a longer term bounce in rates. That possibility continues to be most closely tied to next week's key events on Thursday and Friday. There's no way to know where rates will go after that, but keep in mind that one of the scenarios could see rates continue to drift higher in smaller steps through Wednesday only to move higher at a faster pace afterward. If you're not locking your rate after today's weakness, make sure you set a line in the sand either in terms of rate or closing costs, where you'll lock to avoid further losses.
Loan Originator Perspective
“Locking today is a smart move in my view. Best rates in a year and lowest 10 year yield as well. That could prompt some late-day price changes if we bounce from the lows as is looking likely" -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
"If you floated overnight, you should be thrilled today. Big rally in rates as the 10 year broke through resistance at 2.47. Anytime we get a big rally, it is hard to pass up the improvements. Without a doubt, if you are within 15 days of funding you should lock. If within 30 days, you also should strongly consider locking today." -Victor Burek, Open Mortgage
"A slight pause in rate improvements today but no meaningful reversal back up either. A poor GDP report this morning didn't really help as it was pretty much expected for the most part and probably priced in already. I still believe locking any short term closings makes sense. Beyond that it's really a tough call and you need to dig deep and really assess your risk tolerance. In either case, stay in tune with the markets by keeping in close contact with your mortgage professional." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
"Bit of excitement as rates worsened midday (with 11 lenders repricing higher). Hopefully today's just a rest stop for markets to consolidate following two days of gains. Next week may still hold the key to this summer's rates, with NFP and the European Central Bank announcement. Floating? Keep an eye on the markets and your loan officer on speed dial!" -Ted Rood, Senior Mortgage Planner, tedroodteam.com
"I have been in the float camp for some time now and do believe rates will continue to decline. However risk vs reward for shorter term time lines do favor locking. If time is on your side say over a month floating may benefit you." -Manny Gomes, Branch Manager, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.0-4.125%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25%
- 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. From there, they settled into a flat range mostly consisting of 4.375 and 4.5%, but with occasional forays to 4.25 and 4.625%.
- While the bias had been very slightly 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.
- Earlier in May, the focus looked to be returning to economic data, but that proved short-lived as prospects for European central bank easing overwhelmed some of the incoming data, pushing rates lower while data suggested a move higher.
- As of the third week in May, rates were as low as they've been since June 2013, more than confirming a break below the 2014 range.
- Looking back at recent movement, it's had a disconcertingly small amount to do with 'normal stuff' like economic data and Fed policy. Temporary and unpredictable factors currently account for too much of the movement to make firm bets on rates moving either direction in the short term.
- (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).