June 5, 2014
Mortgage rates finally ended a 5-day losing streak, moving lower for the first time since May 28th. Today's big order of business was the European Central Bank (ECB) Announcement. What does the ECB have to do with mortgage rates? Quite a lot actually. Expectations for rate cuts and other accommodation measures have been helping bond markets in the US move lower in rate for two months, and mortgage-backed-securities (MBS) are a key component of that market.
The past 4 days, however, have seen a noticeable departure from the strength and stability that preceded them. This can be thought of as a last minute adjustment in markets ahead of receiving two days of important data. Today's ECB news was the first of those two days, and it essentially provided an opportunity for the ECB to put their money where their mouth was. For the most part, they did, so bond markets responded favorably.
In terms of the effects on mortgage rates, the most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) is now more evenly split between 4.125% and 4.25%. The latter began taking over yesterday. Some borrowers will see today's strength in the form of lower closing costs vs yesterday. Expressed in terms of effective interest rates, the increase equates to 0.04%.
Tomorrow brings another piece of important information. The Employment Situation Report is the undisputed king of economic reports in the US and it always has the potential to cause big changes in rates. It's normal level of potency may have been somewhat muted if today's news caused more of a stir, but since it didn't, the employment data is the last chance for a big move this week.
Loan Originator Perspective
"After a week of important data, it looks like the future direction of mortgage rates comes down to NFP tomorrow. Investors are still sitting in a very protective position and the results tomorrow can move the market in one way or the other. The safe move is to lock. " -Brent Borcherding, www.brentborcherding.com
"It appears that Draghi provided enough accommodation to please all markets as stocks are at all time highs(again) and bonds have managed to rally recovering a portion of what they lost over the last 5 days. It at least appears we will end the losing streak today. Most lenders have repriced for the better so if you floated over night you should be able to lock with better terms today. Tomorrow we get the jobs report which has the potential to move the markets in a big way. Up to you whether you want to roll the dice. My guess is the report is a little weaker than expected with downward revisions to prior month which should be positive for mortgage rates....but if I am wrong, it could get ugly quickly, so locking is the safe move especially if you are within a couple weeks of closing." - Victor Burek, Open Mortgage
"So, the long awaited action by the ECB came and went with an expected rate cut in Europe, a few other little tweaks in monetary policy and a lot of typical Mario Draghi jawboning. At the end of the day, we had some improvement to lessen the sting of recent deterioration in mortgage pricing but with the Jobs Report looming tomorrow, a high risk event to say the least, locking your rate seems the prudent thing to do." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
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).