May 8, 2014
Mortgage rates added just slightly to yesterday's improvements, inching just a bit lower into the best levels in more than 6 months. The bond markets that dictate rates took their cues this morning from central bankers as the heads of the US Federal Reserve and European Central Bank both offered some reassurance to bond market investors. In the afternoon, a weak auction of 30yr Treasury Bonds prevented any further improvement, but not before quite a few lenders released positively revised rate sheets. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) moved closer to 4.125% for the first time since late October 2013, though 4.25% is very close. Today's improvement equates to an effective drop of 0.02%.
If you've been floating a rate for more than a few days, we're getting into levels where it makes a lot of sense to lock. More aggressive or more flexible borrowers may choose to do that the same way an investor might close a trading position by setting a level (in terms of rate+closing cost combination) that's slightly worse than today's quote, and continuing to float unless the quote worsens to that level.
In other words, If I have a quote of 4.125% with 0 points, I might decide that I'll lock if the quote worsens to 4.25% with 0 points, or perhaps even 4.125% with .5 points. That gives me some buffer against day-to-day ups and downs if I want to take my chances with rates falling further. The only caveat is that this strategy requires a careful eye on the events coming up in the day ahead as some early economic data can complete change how rate sheets look before you'd have time to react. There are some situations where such a strategy either simply can't be facilitated or won't make sense for you particular scenario. In all cases, make sure that you're on the same page with your mortgage professional about your agreed-upon lock/float strategy.
Loan Originator Perspectives
"Yesterday it seemed like we were on the verge of breaking the current range to the side of lower rates, but after today's session it seems that optimism is waning. If you floated overnight, you were rewarded this morning with better rate sheets. I would strongly recommend locking today if you are within 15 days of closing. Longer closes should also consider locking but I am not opposed to floating if closing in more than a few weeks." -Victor Burek, Open Mortgage
"Sometimes you can make a decision that pays off whether it was the right one, or not. I feel like that floating the last few days has paid off for those that have, but it does not mean that it wasn't a high risk, low reward proposition. We're still sitting at the bottom of the range, no data scheduled that would likely drive us lower which means the largest odds are in favor of rates moving upward from here.--LOCK" -Brent Borcherding, www.brentborcherding.com
"Rates have been quite favorable all week but trying to continue floating your rate here and wait for better pricing just seems like you're asking for trouble and especially if you're closing date is within 30 days. Locking here just seems like the prudent thing to do as we start to head towards the weekend. Getting greedy may cost you. " -Hugh W. Page, Sen. Mortgage Consultant, M.B.A. Capital Partners Mortgage
"Some fairly choppy moves in rate markets today kept originators on their toes. The 30 year bond auction was officially rated a "D+" by CNBC, and while rates are still near lows of the year, their motivation for further improvement is murky. Near closing? May be time to pull the lock trigger. If you're 30 days plus from closing, you still have time on your side." -Ted Rood, Senior Mortgage Planner, tedroodteam.com
"It is hard not to lock after so many days of rates improving. We are left to wonder if there is more to room to the down side or not? After news was released today stating 43% of home purchases in Q1 were all cash deals I am left thinking there may be less paper hitting the market in the coming months than forecasters have expected. With the Feds still buying billions of dollars in Mortgage bonds monthly rates may still have more to drop. That being said there is nothing wrong with locking in now if you are closing in the coming week or 2 and taking the risk of a higher rate off the table. " -Manny Gomes, Branch Manager, Norcom Mortgage.
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).