May 5, 2014
Mortgage rates move up just slightly today, after hitting the lowest levels in 6 months at the end of last week. Some lenders who didn't get too aggressive with Friday's improvements were actually in better shape today, but on average, rates were just a bit higher. Even then, they remain very close to the 6 month lows with the most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) holding 4.25%.
In stark contrast to Friday's frenzied market movements, today's activity was relatively subdued. Those market movements--especially in Mortgage Backed Securities (MBS)--are relied upon by lenders in determining mortgage rates. When economic data is stronger than expected, MBS generally lose ground, leading to higher rates. While that was the case today, Friday managed to buck that trend in grand fashion, leaving some doubt as to where mortgage rates will find their next inspiration.
(Read More: Mortgage Rates Take Wild Ride to 6-Month Lows)
Until and unless rates break noticeably lower than 4.25%, we continue to operate in the same long term range. For the most part, that range has centered on the 4.375-4.5% area, but has moved out to 4.25% during the stronger moments and 4.625% on the other side. Over the past 3 months, any push toward and into 4.25% has been an early indication that rates would be reversing and heading back toward the other end of the range. Of course rates won't stay sideways like this forever, but despite Friday's solid performance, they're still sideways for now. The implication is that locking gets wiser the lower rates go without actually breaking through to 4.125%.
Loan Originator Perspectives
"Pricing at most of my lenders this morning was similar to slightly better than Friday. If you floated over the weekend, you should consider locking in the gains. The benchmark 10 year note was unable to hold below 2.60 which has been the bottom of the range all year. It will take some pretty bad data or the conflict in Ukraine to get worse for mortgage rates to head lower in my opinion. Any loan within 30 days of closing should take the gains and lock in." -Victor Burek, Open Mortgage
"If you have to lock today or tomorrow, I'd lock today. We're at the bottom of the range and there is no data scheduled that is likely to have us break through the bottom of the range, so the overnight risk is to the upside. If you have a little gamble in you, there is a 10 yr Treasury auction on Wednesday and if that were to go exceptionally well that could drive us lower. Overall, currently the risk is to the upside with Wednesday's auction as the only real game changer in the next 2 days." -Brent Borcherding, www.brentborcherding.com.
"Now that the Employment Report is in the rearview mirror there is not much to get excited about today. However, we're still sitting at the bottom of this 2 month range we've been in, and while rates have been friendly of late, the fact they have not broken even lower from here makes me lean in favor of locking rates. If you have some time until closing (45 days or longer) you may be able to take a "wait and see" approach for now but keep in close touch with your mortgage professional and be ready to pull the trigger if things move against you." -Hugh W. Page, Sen. Mortgage Consultant, M.B.A. Capital Partners Mortgage
"Nice to see virtually all of last Friday's gains intact today, despite no overt Ukrainian Drama at the moment. We're approaching/at the best rates of the year at a great time for spring buyers. We're still near resistance levels in both bonds and MBS, further gains will require either economic or geopolitical motivation. If you float, do so with an eye to the news, and your loan officer on speed dial!" -Ted Rood, Senior Mortgage Planner, tedroodteam.com
"Mortgage bonds were only slightly lower than Fridays close. We have reached the top of a trading range and the market behavior the next couple of sessions will be extremely important. If Wednesdays treasury action is not well receives rates could very well head higher. Float into Wednesdays auction results but do not stray from the lock trigger. " -Manny Gomes, Branch Manager, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED -4.25
- FHA/VA - 3.75-4.0%
- 15 YEAR FIXED - 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 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).