July 1, 2014
Mortgage rates finally made a move higher today as financial markets transitioned from 2nd to 3rd quarter trading strategies. Most frequently, we see things like economic data and news headlines pushing trading levels in bond markets in either direction. When that effects mortgage-backed-securities (MBS), mortgage rates end up moving as a result. Today was an exception to the norm, however, as the economic data had little bearing on MBS.
In addition to the overt sorts of root causes for rate movement, there are also more subtle considerations that can, at times, carry even more weight. One example is simply the calendar. There are all sorts of stakeholders who trade the financial instruments that ultimately determine how rates will move. One of the bigger categories is that of money managers. At the end of the month (and even more so at the end of the quarter), they can have needs or goals for their portfolios that inform their trading strategy regardless of the day's inbound data and events.
This ebb and flow in the trading world was clearly behind today's bond market weakness (MBS are part of the bond market). When bond markets are weaker, prices are lower and rates move higher. In the context of recently tame movement, today's rise in rates was a bit more abrupt, accounting for an effective rate increase of 0.04%. That's an extrapolation of the higher closing costs now associated with the prevailing rate of 4.125%, which is still the most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution).
Volatility continues to be a risk heading into an action-packed Thursday.
Loan Originator Perspective
"With the holiday shortened week ending on Thursday with the largest potential market moving piece of data, locking in and protecting current pricing just makes sense to me. That, along with the fact that we stopped improving today and pricing worsened could signal a shift in the risks facing us the next couple of days. Sure, it's possible we could improve again on weaker than expected data but you might have to wait until Thursday to see if that comes to fruition and by then we could worsen some more. Use your personal risk tolerance as your guiding principle." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
"New day, but same trading patterns persist. Rates hit a low, then bounce back up, much like gas prices. We're now in the middle of recent ranges, and lock desks may get defensive (worsen pricing) as the holiday weekend and June jobs report nears. Looks like we'll worsen before we improve; locking probably prudent for those nearing closing." -Ted Rood, Senior Mortgage Planner, tedroodteam.com
"Today's move makes locking today the best move if you need to lock this week. We have a long holiday weekend and I believe markets will reflect that by mainting current levels, at best, with the potential for slight worsening. I still think we move lower over the next week and a half, so if you can stomach the risk and wait until next week, floating could be rewarded." -Brent Borcherding, www.brentborcherding.com
Today's Best-Execution Rates
- 30YR FIXED - 4.125
- 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).