January 13, 2015
Mortgage rates fell only modestly today, but it was enough for the best rate sheets since mid-May 2013. That's a new 20 month low, on average. The most prevalently-quoted conforming 30yr fixed rate for top tier scenarios is 3.625%, but 3.75% remains quite common.
Once again, there were no meaningful events on the economic calendar to motivate market movements. Instead, the bond markets that dictate mortgage rates were simply along for the ride as other sectors underwent more volatility. Like yesterday, this was most noticeable in equities markets (stocks). While rates won't always be falling when stocks are falling, the bigger the movement becomes in one, the more likely the other will be affected. Today's movement in stocks was big enough that bond markets couldn't help but trade sympathetically.
Because of this, bond markets were near their best levels of the day in the afternoon when stocks hit their lows. This resulted in widespread positive reprices from mortgage lenders. As such, the average morning rate sheet wasn't quite as strong as yesterday, but the average afternoon rate sheet is slightly stronger.
Rates have certainly been trending lower since the beginning of 2014. That trend has much to do with Europe, and until the trend in European economic concerns reverses, the trend in rates is likely to continue. The tricky part is that the reversal could begin at any time and we wouldn't really be able to identify it without some hindsight. Coming up in the middle of the night tonight, Europe will get an important piece of news in the form of a court ruling that will speak to the European Central Bank's ability to stimulate the economy as it sees fit. While it could just as easily result in very little drama, this is one of those periodic events that has the potential to cause current trends to accelerate or seemingly reverse course. That makes floating more risky in the short term.
Loan Originator Perspective
"If you floated overnight, your pricing today should be very close to what was offered yesterday. As of 2pm eastern, MBS have moved to the highs of the day, but we have not seen any reprices for the better. If your lender reprices for the better and you are within 15 days of funding, you should go ahead and lock today. If your lender doesn't reprice for the better, I would float overnight regardless of when your loan will be funding." -Victor Burek, Open Mortgage
"Historically when bond rallies are based on global events more so than data in the US, they can vanish very quickly. This scenario is no different, in my opinion. Bonds and Mortgages showed great resilience today, and I'd be lying if I said they weren't showing great signs of strength. At these levels; however, I'd be advocating for all of my clients to strongly consider locking. " -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).