September 3, 2014
Mortgage rates started the day heading higher after overnight news of a potential ceasefire in Ukraine caused investors to quickly sell safe-haven assets. The mortgage-backed-securities (MBS) that dictate mortgage rates fall into this 'safe-haven' category along with US Treasuries. When investors are selling MBS, prices move lower and rates move higher.
As the day progressed, however, financial markets steadily backed away from the overnight momentum. Stocks weakened and bond market improved. There is an hour or two in the morning where MBS are trading before most lenders come out with rates for the day. Much of the overnight weakness was erased by then, allowing lenders to price fairly close to yesterday's latest levels. As markets improved into the afternoon, several lenders released improved rate sheets, bringing the average even closer to 'unchanged' on the day.
4.125% remains the most prevalently-quoted conforming 30yr fixed rate for top tier scenarios. Today's weakness would be limited to affecting closing costs. That means actual interest rate quotes shouldn't change from yesterday--just a small adjustment to the upfront costs--if anything at all.
Tomorrow ushers in more volatility as one of the key near term events takes place. Much of the pervasive strength in mortgage rates is a direct result of European financial markets. Specifically, most investors see the European Central Bank (ECB) embarking on a sort of quantitative easing program bearing some similarities to "QE" in the US. The consensus is that this would happen by early 2015, but tomorrow brings one of the monthly meetings and press conferences from the ECB. This could be used as a venue to further the discussion on how a QE program might take shape. To whatever extent that discussion deviates from the market's expectations, we could see bigger movement in rates, for better or worse.
Loan Originator Perspective
"After a weaker opening, thanks to more false headlines from Ukraine, mortgage backed securities have managed to regain all the mornings losses. As of 2pm est, no lender has passed along any of the improvements. Tomorrow we get news from the European Central Bank that could definitely impact rates. For rates to move lower, we need Draghi to speak of potential easing. With no talk of EU QE, rates will probably worsen. And Friday we get the jobs report which is another highly potential market mover which makes floating risky. If locking today ahead of those events, wait until as last as possible to allow lenders to pass along the improvements." -Victor Burek, Open Mortgage
"If you must lock this week, I would lock and look to avoid the swings we're likely to see the next few days with new data releases. Get off the ride, if you can't and or don't want to risk what is likely some worsening in rates throughout this week. " -Brent Borcherding, brentborcherding.com
"Rates seem to be in a pause until the ECB announcement tomorrow. While we've been receiving hints of a new QE program from Europe it's likely we won't see anything definitive tomorrow. Just more jawboning. The result is we'll probably continue to bounce around a tight range until something new comes to dislodge our thinking. The all important Jobs Report on Friday "could" do that but my guess is not. I would lock short term closings and maintain a wait and see position for the longer term." -Hugh W. Page, Mortgage Banking Officer, Seacoast National Bank
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 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).