July 10, 2014
Mortgage rates continued lower today, helped along this time by European markets. Although mortgage rates are most directly influenced by prices of mortgage-backed-securities (MBS), MBS themselves are influenced by broader bond market movements. The most direct influence comes from US Treasuries, but Treasuries in turn are affected by European bond markets.
This was the case overnight as concerns of Portugal's Banco Espirito Santo caused a spike in borrowing costs for Portugal's sovereign debt. Because Portugal shares the Euro currency, when it's costs increase, investors seek safety by buying the debt of stabler EU nations, such as Germany. And it's that German sovereign debt that has the most influence on US Treasuries.
So that's the domino effect leading from some bank you may have never known about in Portugal to your lender's rate sheet. It made for a stronger start today, but once European markets passed the torch to US markets, things began heading in the other direction.
The damage was minimal, though a few lenders did increase rates slightly in the middle of the day. Compared to yesterday, however, rates were noticeably better on average, with only one other day in July being lower. 4.125% is now back in the spotlight as the most prevalently quoted conforming 30yr fixed rate for top tier scenarios. 4.25% is also still quite common.
Loan Originator Perspective
"If you floated overnight, you were rewarded handsomely this morning. News out of Europe helped spark a flight to safety where investors sold stocks in favor of bonds. As the day has progressed, MBS have given back some of the gains resulting in a few lenders repricing for the worse. If your lender didn't reprice for the worse today and you are within 15 days of funding, my recommendation would be to lock now. If you are out side of 15 days, or your lender repriced for the worse, I would float overnight." -Victor Burek, Open Mortgage
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 hallmark of 2014 so far has been a disconcertingly narrow range in rates. Too many market participants bet on rates going higher in 2014, and markets have punished that imbalance with a paradoxical move lower.
- As of June, rates were officially lower year-over-year, but that's due to rates' path higher in 2013. The current path in 2014 remains sideways.
- European markets continue to play a nagging role in the background, generally helping rates in the US remain lower than they otherwise might be.
- From a wider point of view, we're in limbo, waiting for the first significant move away from the narrow range. A rally into late May stood a chance to act as this break, but rates have since returned to what were previously the lower limits of the 2014 range.
- As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.' Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy. It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).