August 1, 2014
Mortgage rates were able to recover some of the ground lost this week after the important Employment Situation Report showed slightly less job creation than expected. Had the report been stronger, rates could have easily continued the week's strong move higher. As it stands, we're settling down very close to Monday's levels, which is a major victory based on the tenor of the past 3 days. The most prevalently-quoted conforming 30yr fixed rate remains at 4.25%, but 4.125% is much more viable than it was yesterday.
Today's victory is very important in that it thwarts what could have been a much bigger move higher. While there's never any guarantee that such a move couldn't simply be delayed, we can still glean some reassuring clues from recent activity. Chief among these is the role of European markets in US rate movements.
Mortgage rates are most-closely tied to the movement of mortgage-backed-securities or MBS. MBS, in turn, tend to move in close concert with certain US Treasuries, especially 10yr Notes. Taking the correlation one step further, Treasuries also tend to move in the same direction as European bond markets, though the size of the movements can vary quite a bit.
Those variations in size have allowed European borrowing rates to reach all time lows this week. Naturally, rates in the US did not hit all time lows, but we continue to see a situation where rates in the US experiencing downward pressure from Europe. It's reasonable to assume that Europe would have to turn a profound corner if rates in the US are to jump significantly higher.
Making the determination of a "turned corner" in Europe is the sort of thing that can only be confirmed gradually. For now, that process has yet to even begin. Keep in mind, this doesn't mean that rates at home can't go higher simply because Europe's rates are moving lower. Rather, it can be viewed as an extra weight, preventing what might otherwise be bigger moves higher.
Loan Originator Perspective
"Ride the momentum into next week is my guidance. Rates are just not ready to move higher and we've moved rather convincingly off of the highs. I expect we'll test the lows, again, shortly. When floating, always do so cautiously, but I personally interested to see what next week brings in terms of lower rates." -Brent Borcherding, www.brentborcherding.com
"If you floated into the employment report, you are being rewarded today. Lenders have yet to pass along all the improvements, but no surprise there. I think floating over the weekend is the way to go. No major reports due out Monday and there is quite a bit of global issues that are not likely to be solved over the weekend. However, if you do wish to lock in today and take advantage of the price improvements, wait until late in the day to give your lender time to reprice for the better." -Victor Burek, Open Mortgage
"An overwhelmingly positive reaction to today's overall soft employment report leaves anyone floating into today with a big smile. Overall, we are still negative to neutral week over week, however we have weathered the single most important data for the month. Geopolitics & foreign economic metrics have assisted in keeping us in the range and hopefully, possibly, with todays weakness we may see a leg down in rates in the near future.....but I wouldn't hold my breath. Floating into the weekend is not a bad idea, but I am locking anything closing in 15 days. Would hate to come in Monday morning with surprises that send rates higher." -Constantine Floropoulos, Quontic Bank
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).