February 10, 2015
Mortgage rates remain under significant pressure, having now moved higher almost every day in February. So far, this is the worst month for rates since Nov 2013. While that sounds pretty bad, in this case, the weakness has more to do with a reaction to previous strength. The trend toward lower rates in 2014 had been very slow and steady. January saw an acceleration of that trend and now February is simply bringing us back in line. Even the strongest long term trends undergo these sorts of corrections.
On such occasions, the question will always be: is this just a correction in a longer term trend or are rates done heading lower? Based on where we are today, it would be far too soon to say that the long term trend toward lower rates is defeated. Fortunately, the strategy is the same either way. At times like these, the lock/float outlook is more defensive. For those of you who are intensely interested in catching the falling knife (i.e. deciding not to lock despite recent moves higher in rates), there's still some room for that provided the risks are understood and that a 'stop-loss' level is understood. One of those risks is that things could still get worse before they get better (i.e. there's more room for rates to move higher without violating the longer term trend).
3.75% is still the most prevalent conforming 30yr fixed quote for top tier scenarios, but 3.875% is now not far behind. A week and a half ago, it was 3.5 and 3.625%.
Loan Originator Perspective
"With rates having moved higher recently, the decision to float over locking is strictly a coin flip of a gamble at this point. The sell off over the last week plus sure "feels" like a buying opportunity that could lead to lower rates, but even if lower rates are in the future, we still may need to head higher in the meantime. If you don't like a coin flip for a gamble, I'd lock." -Brent Borcherding, Brentborcherding.com
"Rates were a shade worse today as the sell off in mortgage binds continued. The silver lining is we now have what has been very solid support near current levels which should prevent rates from further drops. Bonds are also over sold while equities are over bought which creates the potential for a reversal. Historic trends and Logic leads me to believe the risk vs. reward favors floating at these levels. However all bets are off if you see the 10 year yield break above 2.2%." -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.75
- FHA/VA - 3.25-3.5
- 15 YEAR FIXED - 3.00-3.125
- 5 YEAR ARMS - 2.75 - 3.25% 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).