January 12, 2015
Mortgage rates fell modestly again today, bringing them as close to last Tuesday's 19-month lows as they've been, on average. Some lenders are already there, and the other lenders are close enough that the only differences between now and then are in the form of upfront costs as opposed to rate itself. In other words, a scenario that was quoted 3.75% last Tuesday would still likely be quoted 3.75% today, but with slightly higher closing costs (or lower lender credit).
As for the most prevalent rate for top tier scenarios, both 3.625% and 3.75% are viable. Today's improvement tips the scales slightly in favor of 3.625%, but it's still very close.
Today's drop in rates wasn't motivated by any single event--as can sometimes be the case. Instead, bond markets benefited from a broad-based move away from "risk." This so-called "flight to safety" can take many forms, but one of the most common is lower stock prices and bond yields. When bond yields fall, mortgage rates will almost always be falling as well.
Loan Originator Perspective
"Mortgage rates continue to recover the losses of last week following the recent trend of worsening prior to the jobs report, then improving the following week. I favored floating all loans over the weekend, but today i favor locking all short term closings while floating those closing in over 15 days." -Victor Burek, Open Mortgage
"The theme of continued weakness in oil prices and Europe spilling over into our bond market appears to still be prevalent. Rates are great right now (19 mos lows) and in my mind it behooves anyone with a closing within 15 days to lock in these gains now. Beyond that, one must simply check their risk tolerance. No harm in locking in these great rates now but floating for longer term seems like it is safe for now. Just remember, things can change quickly."-Hugh W. Page, Mortgage Banker, Seacoast Bank
"If you've been waiting to refinance, now is your best opportunity in nearly 2 years. What are you waiting for? Lock. Sure rates can go lower, but they can definitely go much higher, too. We have treasury auctions, the 10 year tomorrow, and rates have dropped rather quickly so it's a lot to hope for that demand will be met and a rally would continue. I think the safe play is the smart one, here." -Brent Borcherding, brentborcherding.com
Today's Best-Execution Rates
- 30YR FIXED - 3.625-3.75
- FHA/VA - 3.25
- 15 YEAR FIXED - 3.0-3.125
- 5 YEAR ARMS - 3.0 - 3.50% depending on the lender
Ongoing Lock/Float Considerations
- The hallmark of 2014 was a narrow range in rates. Too many market participants bet on rates going higher in 2014, and markets punished that imbalance with a paradoxical move lower. This continues to serve as a reminder that prevailing beliefs about where rates will go won't necessarily be correct simply because they're the most prevalent.
- European bond yields trended constantly lower in 2014, thus playing a prominent role in keeping US rates lower than they otherwise might be. Many feel that Europe will continue to slide until their central bank engages in US-style quantitative easing. Some see this happening in early 2015. In any event, we're looking for a turn in Europe, first and foremost, before worrying about the longer-term trend in bond markets being at serious risk of reversing.
- Much of 2014 could be considered "sideways to slightly lower" in terms of mortgage rates. All things considered, it actually has been a remarkably gentle drift lower. Things became less gentle in mid October when rates briefly broke into the high 3's. They came back for a more gradual, determined push into the 3's in December. Some of the late-year strength was chalked up to an epic slump in oil prices. This drags inflation expectations lower, which is a net-positive for interest rates, but it could be debated as to whether oil prices were a chicken or an egg in the global growth story.
- 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).