January 15, 2015
Mortgage rates continued relentlessly lower today, but they did so under protest. In fact, the amount of improvement on some lenders' rate sheets relative to the amount of improvement seen in Mortgage-Backed-Securities (MBS, which dictate mortgage rate levels more than anything else) is downright apalling. Moving one more degree of separation toward the epicenter of today's market drama and we also see that MBS themselves severely lagged more central sectors of the bond market like US Treasuries.
First of all, these symptoms are normal for today's type of illness. It's just that days like today aren't very common. Reason being, there was a truly unexpected bombshell out overnight regarding the Swiss Central Bank. The trading relationship between Swiss Francs and Euros was the epicenter of the blast, and the effects radiated out from there, eventually reaching domestic mortgage markets.
The problem that mortgages have in situations like this is that the unexpected volatility arrives at a time where trading levels had already been stretched to unexpected levels and in an unexpectedly short amount of time. Unexpected "stuff" is not good for mortgage rates' ability to hold close to interest rate benchmarks! The king of all benchmarks--10yr Treasury yields--fell .127% today. Mortgage rates certainly did not. In fact, there are still a few lenders at higher rates than yesterday!
On average, however, rates did fall a bit. Some lenders that were well-positioned for market volatility actually saw some excellent improvements. They buoyed the average, and accounted for an increased prevalence of 3.5% as a conforming 30yr fixed quote for top tier scenarios. They're in the minority though as 3.625% continues to dominate.
Loan Originator Perspective
"My outlook for the near future is rates are going lower. Unless you must lock to meet a closing, i would definitely float all loans overnight to allow time for lenders to pass along the improvements we are enjoying today. But as always, there is potential for an unexpected event that can spoil things for floaters. In addition, with rates going lower, lenders are getting very busy and do not have the staff available to handle the increased volume. This could lead to lenders randomly worsening rate sheets in a way to slow down new locks. So stay in touch with your loan officer!" -Victor Burek, Open Mortgage
"Mortgage rates appear to be pushed lower by global events again, but with a little closer look mortgages, today, are basically at the best levels of yesterday before they sold off. It appears to me that mortgages are being a little resistent, at least at this time, to following bonds lower. We're at 2+ year lows, so until we get confirmation this "rally" will actually move lower...Locking is the smartest decision." -Brent Borcherding, brentborcherding.com
"In the face of more surprising economic news out of Europe mortgage pricing continues on the path of improvement rewarding all those who have waited to lock in their loans. Personally, I would not hesitate one minute and lock in some of the best pricing we've seen in 2 yrs but of course, if you disregarded that advice at the beginning of the week you've benefitted significantly. We will bounce back worse in pricing at some point and I just wouldn't risk losing what's in front of us now. Enjoy!" -Hugh W. Page, Mortgage Banker, Seacoast Bank
"Rates dropped again today and while it appears likely they may continue to drop we do need to be conscious they can not go down in in a straight line. We are due for a pause and even a pull back and any loan closing in the coming weeks should be getting locked. If time is on your side meaning 4 3 weeks or more you may float but extremely cautiously for if the trend changes direction it will be fast and swift. " -Manny Gomes, Branch Manager Norcom Mortgage
"Wow is about all I can say for the recent market. EU economic and deflation concerns are driving rates down worldwide, and we're no exception. While nothing is guaranteed, for now the trend remains our friend, and pricing continues to improve. Borrowers with a fair amount of risk tolerance may float here. Certainly those close to closing need to pay close attention to ensure they don't give up the ground they're gained." -Ted Rood, Senior Loan Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.5-3.625
- FHA/VA - 3.25
- 15 YEAR FIXED - 3.0
- 5 YEAR ARMS - 3.0 - 3.50% depending on the lender
Ongoing Lock/Float Considerations
- 2015 began with a strong move to the lowest rates seen since May 2013. The catalyst has been and continues to be Europe.
- 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.
- It's impossible to know when Europe will turn a corner, and even then it's only the sort of thing we'll be able to observe in hindsight. That means every head-fake toward higher rates runs the risk of developing into a longer term rise, even if those risks vary greatly in terms of probability. Clients with longer term time horizons and who otherwise don't mind losing some ground in exchange for the chance at locking even lower rates are the only ones who should float. Clients who must close by a certain date or who can't afford to lose any ground on rates should generally be locking even though the longer term trend has been in their favor for over a year now.
- 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).