September 12, 2014
Mortgage rates have now endured an insulting 10 straight days without improving. While a few of those have resulted in 'unchanged' levels, most have sent rates higher. Today, in particular, has the grim distinction of moving the most prevalently-quoted conforming 30yr rate back to 4.25% for top tier borrowers. It had been 4.125% since early June. Some borrowers might still be quoted the same rate today vs yesterday, but with appreciably higher closing costs.
Mortgage lenders and bond markets are defensively gearing up for next week's Fed Announcement. That's the leading theory behind the recent movement anyway. Depending who you ask, the fear is that the Fed will remove the verbiage in their official policy statement that says they wouldn't hike rates for a "considerable time" after the end of asset purchases. In short, it opens the door for an early 2015 rate hike vs the recently prevailing expectation of mid 2015.
Be careful here... It's very possible that this is simply the story that markets and media have latched onto above the others. There are several other factors in play that, when taken in combination, are just as capable of justifying the type of movement we've seen. It's not safe to assume that rates moved too high too quickly and are therefore destined to come back down.
Loan Originator Perspective
"I've been committed, strongly, to locking each day this week and each day rates have gotten worse. Now, the worst possible thing for rates has happened and we've broken out of the high side of the range which if sustained would simply mean that rates are about to continue higher from here. There's a chance this is just a test, the move won't be confirmed, we'll move back into the range and rates will move lower. That's a big HOPE at this point and nothing I would base my decision upon. LOCK and if rates do in fact improve over the coming weeks, work with your mortgage broker to float down, but a move lower in rates isn't a high probability at this point." -Brent Borcherding, brentborcherding.com
"If you are happy with your current quote, locking at application should be strongly considered. Rates have been moving quickly higher, in part, due to anticipation of potential changes in next week's Fed announcement. Investors are wary that rate hikes may come sooner than later, which has increased volatility. Without clarity in the Fed's announcement, there is little to gain by floating in this environment. " -Justin Dudek, Senior Loan Officer, Supreme Lending
"Locking your rate this week was definitely the right move as rates are now at recent highs. With the Fed giving some guidance next week on the potential pace and timing of rate hikes, the bond market has reacted as if rates will be moving higher sooner than initial estimates. Bond market action this week could be ahead of itself and we may see some retracement of rates if the Fed sticks to current language. However, if they do tweak the language regarding the timing of rate hikes, then rates could continue a move higher."-Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
"What a difference a week makes! We've essentially lost 120 bps (1.2%) to loan pricing (not rate) in the past 5 days. Our "rates trending down" trend is officially over, and now it's a question of where we land after next week's Fed statement and Fed Chair Yellen press conference. Let's hope the market regains some traction, for now our pricing is downhill fast!" Ted Rood, Senior Mortgage Planner, tedroodteam.com
"Momentum has been negative for several days now and I don't see any evidence in front of me to suggest a reversal any time soon. That doesn't mean of course that it won't come but with a Fed meeting next week wrought with anticipation of a change in verbiage the risk level seems high and leads me to believe locking is the prudent move now." -Hugh W. Page, Mortgage Banker, Seacoast National Bank
Today's Best-Execution Rates
- 30YR FIXED - 4.25
- FHA/VA - 3.75-4.0%
- 15 YEAR FIXED - 3.375-3.5
- 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. While top tier rates moved up an eighth of a point in early September, to truly move out of the "narrow range," we'd need to see another .125% higher (best-execution at 4.375%)
- 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).