June 17, 2014
Mortgage rates erased yesterday's improvement, ending up back at levels consistent with the middle of last week. Stronger-than-expected inflation data fueled speculation that the Fed will remain on an aggressive path with respect to an eventual rate hike. Bond markets continued to suffer while stocks bounced back from pre-market weakness. Most lenders ended up raising rates at least once during the day.
The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains 4.25%. Many borrowers will see today's increase only in the form of higher closing costs (equivalent to 0.04% in terms of rate).
For most of 2014, and especially since May, mortgage rates have been in a very narrow range marked by top-tier rates of 4.125%-4.25%. As we frequently discuss, most days don't bring enough market movement for rates themselves to move a full eighth of a point. Within those eighth-point chunks however, closing costs can change every day, and sometimes several times a day.
While 4.25% has been the headline rate for more than a week, that's more clearly the case on some days vs others. Today is one of those days. The implication is that we'd need a fairly big, positive move in bond markets in order to get back to 4.125%.
Loan Originator Perspective
"Weakness in rates today ahead of the FOMC meeting tomorrow reinforces my belief that for the risk averse locking is the prudent action. One seemingly innocous change by the Fed tomorrow could result in an unexpected market reaction that could prove painful. A decision to float here and chance better pricing down the road is a roll of the dice. Assess your tolerance for risk and act accordingly." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
"Today rates moved up a bit to the higher end of the current range. Traders may be positioning themselves ahead of tomorrows Fed decision. The risk of floating ahead of the decision is pretty high. If we break the range, rates can move up in a hurry. The bright side is the fed decision comes out in the afternoon, after the first round of rate sheets in the morning." -Manny Gomes, Branch Manager, Norcom Mortgage
"The benchmark 10year treasury note tested the top end of the range today following hotter than expected inflation data. We do not get any major economic data in the morning, but we get potentially range breaking news tomorrow afternoon with the release of the FOMC monetary statement and accompanying press conference. With the range holding, I do favor floating overnight, but be ready to lock tomorrow afternoon in case the FOMC statement or presser pushes yields through the top of the range. If you cannot be in touch with your loan officer tomorrow, then locking today is the safe move." -Victor Burek, Open Mortgage
"We trended towards higher rates today as markets got defensive ahead of tomorrow's policy statement from the FOMC. It's unlikely we'll get a change in Fed policy tomorrow, the key factor will be any change in the language of the statement regarding future rate hikes. While rates are still in recent ranges, we've definitely pushed towards the higher end. Close to closing? Either lock today, or have your originator on the phone tomorrow. The good news is that Fed statements are released midday, meaning loan officers (especially those who track MBS prices) have at least a few moments to react should rates move quickly." -Ted Rood, Senior Mortgage Planner, tedroodteam.com
“Right on the edge of a potential move higher in rates in my opinion. I hope I’m wrong, but for the first time in a while bond markets looked at inflation numbers reported today and made a move. The move was not bond friendly and this puts us close to the higher end of our recent range. If we break above then rates will go higher. I don’t see any concrete reason to float and take the chance of a higher rate so I favor locking.” -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
Today's Best-Execution Rates
- 30YR FIXED - 4.25%
- FHA/VA - 3.75%
- 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. 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%.
- The bias had been very slightly toward higher rates, it reversed course in early April as expectations grew concerning European Central Bank easing. On several occasions, those expectations would go on to overwhelm domestic economic data--normally the main source of guidance for market movements.
- 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. They remained in that range through month-end and grew more volatile ahead of the June 5th European Central Bank Announcement.
- 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).