August 5, 2014
Mortgage rates were just slightly higher this morning. Bond markets (which set the tone for mortgage pricing) lost some ground overnight and remained under pressure after the morning's economic data beat expectations. In general, stronger data suggests higher bond yields (which correlate to mortgage rates) and stock prices. While both did, in fact, move higher at 10am, there was some relief in the afternoon.
Global stock markets came under strong selling pressure as headlines emerged suggesting Russia could soon invade Ukraine. More often than not, when markets respond to such geopolitical headlines, one of the key ingredients is increased demand for safe-haven assets such as US Treasuries and other 'bonds.' The mortgage-backed-securities (MBS) that dictate mortgage rates are almost always moving in the same direction as Treasuries, but by varying degrees. Today, for instance, MBS have indeed moved higher and lower at the same time as Treasuries, but they are still slightly weaker compared to yesterday while Treasuries are slightly stronger.
The net effect of slightly weaker MBS is logically higher rates. For ideal scenarios, the most prevalently quoted conforming 30yr fixed rate remains split between 4.125 and 4.25. The latter gained a bit of ground today, but overall, the movement was almost insignificant. Several lenders revised rate sheets in the afternoon following the geopolitical shake-up, but so far, this is the exception, not the rule.
Loan Originator Perspective
"After a data packed previous week, there isn't much of significance scheudled for the rest of this one, after ISM this morning. Rates started the day in the hole but rallied through out the day, and I think if there is any directional momentum, even if very little, it's towards lower rates the next few days. I see limited risk in floating, and that is precisely what I would do, day to day, for now. " -Brent Borcherding, brentborcherding.com
"Early morning weakness in the bond market led to slightly worsened rate sheets. As the day has progressed, bonds have fought back and as of 2pm est, they have turned positive on the day. Despite the gains, only a couple lenders have repriced for the better. That said, I think floating overnight is the way to go to see if this move can continue tomorrow." -Victor Burek, Open 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).