June 18, 2014
Mortgage rates moved modestly lower by the end of the day, but didn't break any new ground on the week. The afternoon brought the week's main event in the form of the Fed's policy announcement. It lived up to its potential as a major market mover, but much of that movement came in the form of short-term volatility. This ultimately left rates within the recent range that has characterized most of the month of June.
If we go one step further and consider that yesterday's somewhat abrupt move higher in rate was due to markets quickly adjusting expectations for today's Fed Announcement based on yesterday's CPI, things get even more underwhelming. Reason being: rates rose yesterday as markets braced for tougher talk from the Fed regarding inflation, but regained most of that lost territory today.
The net effect for the mortgage market is that we have rate sheets that are just slightly better than yesterday's and not quite back to Monday's. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains 4.25%. Many borrowers will see today's drop only in the form of lower closing costs (equivalent to 0.03% in terms of rate).
That said, with some of the improvement in markets coming as late in the day as it has, lenders likely have a bit more to go before rate sheets match market conditions. We'll only see that extra improvement if trading levels are in similar territory tomorrow morning (because it's too late in the day for many lenders to reissue rate sheets).
Loan Originator Perspective
"So, the FOMC Meeting came and went with little fanfare really. We're still in the same range of rates for the last year and we remain near the lower end of that range. I think that means the risk of higher rates over the near term is greater than the likelihood of lower rates so I still recommend a locking bias. Risk tolerance should be your guide." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
"Bond markets were able to improve slightly after the fed decision. Bonds are seriously over sold and could be ready for a reversal now that the Fed decision is out of the way. Floating into tomorrow appears safe." -Manny Gomes, Branch Manager, Norcom Mortgage
"Quite a bit of volatility following the release of the FOMC statement. There was really no surprises contained in the release of the FOMC statement or from the following press conference. If you floated overnight, I would continue to float to see if we can build on the gains we received today. We still have a pretty strong ceiling of support just over head which should prevent a rapid rise in rates. And with the volatility post statement, lenders are being slow to pass along the improvements. We also continue to have quite a bit of geopolitical risk around the world which could quickly spark a rally to safety where investors buy bonds which lower interest rates." -Victor Burek, Open Mortgage
"FLOAT--We're near the high side of the recent range and the Fed's announcements today did nothing to create immediate concern that rates would move higher. In fact, you could easily argue that there are some small hints that could move rates lower. The combination of the high side of the recent range and potentially positive developments make floating a risk worth taking in my book." -Brent Borcherding, www.brentborcherding.com
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).