July 24, 2014
Mortgage rates moved higher today at the fastest pace since July 3rd as bond markets began backing away from more anxious levels associated with last week's geopolitical headlines. Such headlines (Malaysian airliner and Gaza invasion) can motivate investors to seek safe-havens such as Treasuries and MBS (the mortgage-backed securities that influence mortgage rates). Since last week, bond markets have been relatively on edge but never moved any lower than the initial move on Thursday. If there has been one day since then that "undoes" the flight-to-safety, today is the best candidate.
This isn't for any particular reason either. Sometimes when it comes to financial market movements, "it's just time." A few caveats here though... First of all, the movement wasn't exceptionally large in a historical context. Sure, it's the biggest move up in 3 weeks, but only because the past 3 weeks have been historically narrow and generally moving lower. Secondly, there were other reasons for rates to weaken today, including strong economic data overseas and at home.
There was also one very weak piece of economic data in the US today as New Home Sales were much lower than expected, but because of the prevailing trend this morning, it merely served to stem the tide of rising rates as opposed to reverse it. Ultimately, the most prevalently-quoted conforming 30yr fixed rate moved back to 4.25% today, though some lenders remain at 4.125%. Some borrowers will be quoted the same rate today as yesterday, but generally with higher closing costs.
From a strategy standpoint, today's weakness constitutes a vote being cast for the first time this week on our recent run of lower rates. In other words, we moved abruptly lower last week and have held very steady--waiting for the next move. Today delivered that move. The fact that it was higher suggests increased risks in floating as such days run the risk of being the start of a new trend. There's no way to know this for sure, of course. The important point is that risk/reward is no longer as muted as it had been this week. It continues to be the case that next week has infinitely more potential to cause big movements in rate.
Loan Originator Perspective
"With the snap back worse in pricing today borrowers should have been locking yesterday as I recommended. If you didn't, and you're closing soon I would lock now and get this pricing protected. Any floating stance right now in the face of a Jobs Report Week coming up should be accompanied by extreme diligence in maintaining connections with your loan officer to be able to pull the trigger quickly if need be. I recommend LOCK." Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
"Rates headed a bit higher today. If you have not locked the last few days you may want to if you are risk averse. If you can stomach potentially locking in at a higher rate than is currently available floating can pay off. Mortgage bonds have been consolidating and appear to be ready to break out soon. To what direction we still don't know but staying patient and waiting for the break can be a smart move. " -Manny Gomes, Branch Manager, Norcom 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 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).