June 25, 2014
Mortgage rates fell nicely today following the much weaker-than-expected reading on Q1 GDP. The improvement takes average rates to their lowest levels this month, just edging out June 2nd--previously the best day. This also pushes the most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) to 4.125% from the recent 4.25% level. Both rates are common, but 4.125% took over today. In many cases, the actual quoted rate would be the same as yesterdays but with lower closing costs. Expressed in terms of 'effective rate,' the drop in closing costs amounts to 0.04%.
A prominent feature of bond markets and mortgage rates in June is that everywhere you look, rates have been contained by a range! In terms of average mortgage rates, the range was as narrow as 4.25%-4.25% (because the average rate itself didn't change... only the closing costs associated with 4.25%). In terms of 10yr Treasury yields--an interest rate benchmark that tends to move in concert with mortgage rates--the range has been 2.57-2.66% with uncanny reliability since early June.
That range was broken today, but only slightly. There are two ways to approach this depending on your level of risk tolerance. First and foremost, any time rates are at the lowest levels in nearly a month, it's a compelling argument to lock. Additionally, rates haven't risen in 6 of the past 6 days and they've fallen in 7 of the past 9. In general, the more consecutive days markets move in one direction, the more likely a correction becomes, even if only temporary.
The other way to approach today's move is to consider the break of the range as a potential shift away from a sideways trend into a trend of improvement. That said, the break would be more meaningful if it's confirmed by tomorrow's trading (meaning we'd need to see rates go no higher tomorrow). With that in mind, the decision is whether or not you're willing to pay the cost of admission to see if that happens, where the cost equates to however much higher rates might go if they head back into the range after tomorrow morning's data. That could easily be another .125% higher depending on your scenario.
Loan Originator Perspective
"Weak economic data helped mortgage rates improve once again today, but the weakest report was the final reading of first quarter GDP which is backwards looking. Thus, the gains were not as much as you would hope. Tomorrow, we get much more important data with consumer consumption and personal income, as well as inflation data with the release of the Fed's favorite gauge the PCE index and finally weekly jobless claims. As the day has progressed, we have given back some of today's gains and I am fearful the data tomorrow will not spark a strong enough rally to justify floating. I favor and I am recommending to my clients that are within 30 days of funding to lock in todays gains." -Victor Burek, Open Mortgage
"On the heels of a worse than expected 1st Quarter GDP report today as well as a weak Durable Goods Orders report one would think we would have experienced a better rally and greater improvement in rates. The fact that we didn't break to greater lows on this data but merely moved to the bottom of the range we've been experiencing tends to indicate to me that locking in these gains now is the prudent action." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
"Signs we may be breaking out of the current range in the near future started to surface today. It is looking more likely the bond may break out to the upside and lower mortgage rates will accompany this move higher in bonds. We still need confirmation this will take place but it sure makes Floating an easy call to make." -Manny Gomes, Branch Manager, Norcom Mortgage
"Floating remains safe and what I believe to be the best option, right now. Rates may...MAY...have broken for a longer move lower, so with the improvents received today, I think the risk is worthwhile to see if rates continue lower tomorrow." -Brent Borcherding, www.brentborcherding.com
"We are now firmly in the 4.125% to 4.25% range with 4.0% in sight. Not much news for the next few days so floating is everyone's best option at this time." -Chris Marconi Vice President First Midwest Bank
Today's Best-Execution Rates
- 30YR FIXED - 4.125-4.25%
- 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.
- The narrow range persists even now, though due to the rate landscape from a year ago, rates were officially lower "year-over-year" on June 20th.
- (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).