July 18, 2014
Mortgage rates managed to hold their ground today. Some lenders were even in slightly better shape, though there was no change on average. That's somewhat interesting considering the bond markets that most directly affect rates were in slightly weaker shape today. In short, market movement pointed to higher rates. So how did they manage to hold steady?
Today's somewhat counterintuitive strength is really the story of yesterday's completely understandable hesitation. Yesterday was driven by several unexpected and relatively shocking headlines. While it's not uncommon for bond markets to respond to such events, it's just as likely that the trading levels will bounce back a bit after the first phase of the reaction. Whether that happens sooner or later, lenders don't perceive such events as having a lasting impact on the bond prices that dictate their rates.
In other words, yesterday's improvements in mortgage rates belied the scale of the market movement. One additional factor here was that the last push in markets yesterday came too late in the day for many lenders to adjust rate sheets. So rate sheets never fully reflected the market gains. That left them in a better position today to soak up a bit of market weakness without any profound effect on rate sheets.
4.125% remains the most prevalently-quoted conforming 30yr fixed rate for top tier scenarios. When it comes to geopolitical risks, a lot can happen over the weekend. The baseline scenario is for that 'bounce back' mentioned above, but on the chance the situation in Ukraine or Israel deteriorates further, rates could continue to improve. We're really at the mercy of the headlines (or lack thereof). The biggest market movements in the near future are likely reserved for the week after next when several important scheduled events occur in the space of 3 days. We'll discuss that more as it approaches, but that week has a chance to set the tone for the next major rate movement.
Loan Originator Perspective
"No follow through on improvements in pricing today which makes me lean on the side of protecting this pricing now for short term locks before a bounce back higher occurs. Floating loans closing in over 30 days is likely not a big risk but as we get closer to the end of the month the economic data begins to heat up with our first reading on 2nd Quarter GDP on 7/30 followed by the all important Jobs Report on August 1st. Borrowers floating in to this time frame need to stay vigilant and aware of what's going on in the markets by staying in close contact with their loan officer." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
"If you've floated to this point, I'd certainly wait to see what Monday brings and then cautiously adjust my plan each day moving forward. Mortgages are still trailing a long way behind Treasuries and next week brings about a lot of data that can heavily influence both. Cautiously floating into next week is my plan." -Brent Borcherding, www.brentborcherding.com
"The dust is settling, if only for the moment, after yesterday's frantic action. Biggest concern after rates improve due to geopolitical strife is that the gains can evaporate quickly. With that in mind, folks closing within 30 days may want to take a hard look at today's pricing. Those with longer time frames, and some risk tolerance, might consider floating. Ukraine is not solved, Israel is still in Gaza, etc, so the potential for more incidents is high. Hate to see international drama, but it does often help mortgage rates." Ted Rood, Senior Mortgage Planner, tedroodteam.com
"I favor locking in the recent small gains as I feel they are not likely to stay around. Geopolitical events are reflected in the current market, keeping rates low, but those effects can quickly fade." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
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).