January 22, 2015
Mortgage rates didn't budge today. That's impressive considering the amount of volatility in financial markets leading up to and following the European Central Bank (ECB) announcement. Markets widely expected the ECB to announce a new quantitative easing package today. That's indeed what happened, but when it comes to European monetary policy, things are never as cut and dry as they are for other central banks that aren't trying to balance the needs and laws of 19 separate countries against the economic realities and legal constraints of the broader Eurozone.
If this sounds complex, that's because it is. And that makes for wide-ranging reactions in financial markets. Not only that, but financial markets have this well-known habit of trading in advance of actual events based on expectations and even rumors. Today's ECB news had plenty of both. Consequently, global bond markets (which eventually trickle down to affect specific areas of domestic bond markets, including mortgage rates) were all over the place for most of the day.
Mortgage rates had a plan though. It involved adjusting rates higher over the past several days and leaving plenty of extra room for the volatility that was very likely on the way. The plan (whether intentional or not) worked perfectly, leaving lenders with very little need to change rates from yesterday and very little need to issue mid-day reprices during the day. By the end of the day, the trading levels in the secondary mortgage market were fully justifying the decision for rates to remain unchanged.
Loan Originator Perspective
"If you floated into today, I would definitely continue floating. The much anticipated news from ECB head Mario Draghi turned out to be far less than the bazooka many were expecting. I believe over the next few days, yields here will start to move lower once again as the market gets time to digest the news from this morning. " -Victor Burek, Open Mortgage
"The planned European news has come and gone and the 10 yr Treasury and MBS are almost exactly where we started the day. European yields have moved lower, and that is the reason I want to wait and see what we do in the next coming days before I lock. I'm going to float cautiously. " -Brent Borcherding, brentborcherding.com
"Historically the beginning of QE has boded better for stocks than bonds. Obviously European QE will be unpredictable, and may not help us at all....but probably will at the very least cause some waves. Treasuries are still in a very bullish overall trend, locking in may be the safe approach, but I think we will be seeing better rates to come. Loans with 15+ days to close should roll the dice." -Constantine Floropoulos, Quontic Bank
"QE news out of Europe was as expected, but didn't impact US mortgage rates. Small daily losses are far less dramatic than huge one day selloffs, but they eventually add up. Floating borrowers may want to consider their current pricing, and see if locking makes sense. The bulk of my loans are locked, which is currently a good thing!" -Ted Rood, Senior Loan Originator
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
- 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).