July 17, 2014
Mortgage rates moved more decisively lower today, though not for any stable or happy reasons. Such is often the case with interest rates. As economic conditions worsen or as terrible events around the world fuel demand for bonds, prices of those bonds rise, causing rates to drop. This was the case today for US Treasuries as geopolitical events rocked markets. Mortgage-backed-securities (the bonds most directly responsible for mortgage rates) tend to move in the same direction as Treasuries. Today was no different, but with geopolitical headlines moving markets, Treasuries get more of the benefit because they're a more readily available "safe-haven" asset.
The events in question include the shooting down of a Malaysian airliner near the Ukraine/Russia border as well as the inception of an Israeli ground-based assault on Gaza. There were other considerations in play today, but these were the biggest. The net effect was strong and steady improvement in bond markets and several instances of mortgage lenders revising rate sheets lower during the day. The gains leave 4.125% as the most prevalently-quoted conforming 30yr fixed rate for top tier scenarios. The ability for rates to remain this low or move lower is limited only by the geopolitical strife to continue escalating. Once it stagnates or improves, rates are likely to snap back higher. Even then, we have yet to see a move outside the 2-month range.
Loan Originator Perspective
"The Malaysian Jet incident today created a bit of geopolitcal risk helping bonds and therefore mortgage rates improve today. On a technical basis we've moved nicely down to a floor in pricing but it appears we've been unable to break through this floor to prove this rally has more legs. Given that, I believe short term closings should stronglyconsider locking to reap the gains we've experienced. Folks with a longer term to closing can likely keep a floating with a cautious and attentive stance and a close connection to your loan officer." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
"FLOAT--Treasuries have moved towards 2014 lows, and Mortgages are trailing, slowly, behind. If treasuries simply hold these levels we'll see rates improve. As always, though, be ready to lock if momentum changes quickly." -Brent Borcherding, www.brentborcherding.com
"News of the Malaysian airliner being shot down over Ukraine has sparked a flight to safety trade where investors sell stocks in favor of bonds. The news helped push the benchmark 10 year note to the bottom of our recent range at 2.47 which has been very solid resistance. I have been saying the last few days to float the highs and lock the lows....however, we just received breaking news of a ground invasion of Gaza by Israel forces. This news has pushed the 10 year even lower. At this point, lenders will be very slow to pass along the improvements. Even though we are at the best levels in quite some time, I would recommend to float overnight to allow lenders additional time to pass along these improvements. " -Victor Burek, Open Mortgage
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 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).