September 11, 2014
Mortgage rates were essentially unchanged today. Most lenders were microscopically lower in terms of closing costs, though several went the other direction. On average, the movement barely registered, keeping rates at their highest levels since August 4th. This also keeps the most prevalently quoted conforming 30yr fixed rate in limbo between 4.125 and 4.25% for top tier borrowers.
Mortgage-Backed-Securities (MBS) are the financial instruments that groups of similar loans become in order to be traded on Wall Street and they have the most direct effect on rates. MBS trade all day long whereas lenders will only put out new rate sheets once a day, and then "as needed" based on market changes. MBS, along with the broader bond market have been under fairly constant pressure so far in September, which explains the recent rise in rates.
As we discussed yesterday, the weakness had been pervasive enough that we stood a chance to see a day or two of recovery. Today looked like it would be one of those days early on, but as it progressed, MBS fell back to even weaker levels than yesterday. Several lenders 'repriced' to slightly higher rates in the afternoon and the negativity continues for yet another day.
How long will this new trend toward higher rates last? The most important day in the near future will likely be next Wednesday when we get a new policy statement from the Fed. Many market participants expect the Fed to change the verbiage about rate-hiking timing. Whether that happens or not, markets will likely be moving quickly after the statement is released. Between now and then, hoping for a meaningful move lower in rates is risky. Things could get worse before they get better. If tomorrow morning's Retail Sales data happens to be significantly weaker than expected, it might help rates hold their ground a bit better against what has otherwise been a steady move to higher rates.
Loan Originator Perspective
"We received a reprieve from worsening rates today, and I'd personally take advantage of it. The risk of rates moving higher over the coming week is too great. We're at the high side of the range, and if that were to break, rates wouldn't move higher by a little....it would be by a lot. Take what you got today, lock and move forward." -Brent Borcherding, brentborcherding.com
"The risk for rates to increase in the near term are still high. Locking is the only thing to do at times like this. Should rates come down in the coming weeks which I expect will happen you can always renegotiate your rate." -Manny Gomes, Branch Manager, Norcom Mortgage
"Floating remains dangerous but we do have some solid support just over head on the benchmark 10 year. Following the strategy of float the highs, lock the lows, i would favor floating, but again that comes with risk. If the ceiling is broken, it could get ugly very fast. If you plan to float, make sure you stay in close contact with your loan originator. If 2.56 is broken, I would lock as quick as possible, until then i think floating is worth the risk." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.125-4.25
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25%-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 are now lower year-over-year, but that's mostly due to rates' path higher in 2013. The current path in 2014 remains sideways, though it has recently approached (but not broken) the lows set in late May
- European markets continue to play a prominent role, 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. The most prevalent top tier rates haven't changed since mid May
- 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).