August 27, 2014
Mortgage rates fell by an almost imperceptible amount today. Some lenders were actually unchanged or slightly higher. The actual NOTE rates quoted today would be identical to yesterday, with the only differences being seen in the form of modestly lower closing costs. This means that 4.125% stays intact as the most prevalently-quoted conforming 30yr fixed rate for top tier scenarios. All that having been said, the slow trickle of improvement is gradually bringing rates closer to their best levels in 2014. It would only take another few days of these improvements to get there.
The bond markets that underlie mortgage rates started strong today, once again benefiting from strength in European bond markets. We talked about this phenomenon at length yesterday (Read More: How Long Will Low, Flat Mortgage Rates Last?). Bond markets didn't move much during US trading hours, but this was more true of the Mortgage-Backed-Securities (MBS) that directly dictate rates as opposed to US Treasuries which continued improving into the afternoon. In other words, Treasury rates are continuing their recent trend of moving lower, faster than mortgage rates (which are stuck in the mud by comparison).
From a lock/float standpoint, today is one of the better recent opportunities to lock. Reason being: rates are at their 2nd lowest level of the year and tomorrow brings data that could contribute to market volatility. Keep in mind, it's always a possibility that the data will work in our favor, but in the short term, risk outweighs reward in these situations. If you're intent on floating and have a longer-term time horizon, that's not necessarily a mistake either, as long as you have a 'stop-loss' level set somewhere overhead. For instance, if you're at 4.125% today, you might say "if rates rise to 4.25%, I will lock to avoid the risk of further losses."
Loan Originator Perspective
"We have our final auction of the week tomorrow. As stated before, not uncommon to see a rates improve once the final auction is out of the way. That said, i think floating all loans over night is the way to go. Short term closings might want to consider locking if you are happy with the current terms." -Victor Burek, Open Mortgage
"Rates dropped a bit today but tomorrow we get hit with some data which can shake things up. Long term I do believe rates will gradually decrease but if you are looking to close in the coming week or 2 locking ahead of tomorrow makes a lot of sense. " -Manny Gomes, Branch Manager, Norcom Mortgage
"All eyes to Europe today amid chatter of looming QE by central banks there. Loan pricing improved, although not (for now) as much as they might have compared with bonds. The CBO also lowered its estimate for US GDP this year, apparently both EU and US economies are not robust just yet. The long term trend has been our friend for some time, and short term is now as well. Appears there's more potential for further improvement than risk in floating, can't fault those who watchfully float their loans unless closing soon." -Ted Rood, Senior Mortgage Planner, tedroodteam.com
Today's Best-Execution Rates
- 30YR FIXED - 4.125
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25%
- 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).