February 20, 2015
Mortgage rates are ending the day in very similar territory to yesterday's latest levels but have had something of a wild ride between now and then. At issue is the ongoing drama between Greece and its Eurozone creditors. There was some risk heading into today that a temporary agreement would be reached to extend Greece's bailout agreement, and indeed that's behind the volatility.
But why would a Greek bailout extension be a risk for mortgage rates?
Greece has actually played an integral role in domestic market movements over the past several years. This most recent flare up is partially responsible for the low rates we've enjoyed. Long story short, the "drama" means increased risk that Greece will default, which in turn benefits the Eurozone's most stable sovereign debt, such as Germany's. When we talk about 'sovereign debt,' it's the same thing as US Treasuries at home, and in fact, Treasuries reap some of the benefits from the excess demand created by drama in Europe. Think of it as nervous investors seeking safer havens. Finally, as you know, Treasuries and the Mortgage-Backed-Securities that dictate mortgage rates tend to stick fairly close together. That's why a Greek deal is a risk. It saps demand for safe haven debt. Lower demand = higher rates.
Thankfully, the news of the Greek deal hit markets that were already in much stronger territory for the day. That means that most lenders started out with lower rates this morning and although mid-day volatility led them to raise rates in the afternoon, it was only back to yesterday's levels.
Where we go from here is a matter of debate and opinion until we see how next week's two main events shape up. The first isn't really an event. Rather, it's simply the Monday deadline for Greece to hammer out some of the details of today's deal. The other event is Fed Chair Yellen's congressional testimony where markets will refine expectations for Fed policy changes in the next few meetings. We're still very much at risk in terms of the rate outlook and a lock bias still makes much better sense for almost any scenario. Keep in mind, that doesn't mean rates can't improve, simply that we haven't seen enough evidence for that to lower our defenses.
Loan Originator Perspective
"What started out as a good day has quickly turned directions. Rumor of a Greek deal to stay in the EU has caused more selling pressure in bonds. The trend right now is not our friend. The benchmark 10 year note has bounced off resistance at 2.04 several times and until that resistance is broken, locking is the wise move especially if your lender has not repriced for the worse today." -Victor Burek, Open Mortgage
"The Greece/Eurozone melodrama continued today, seemingly changing by the minute. Both MBS and treasuries opened higher, but as of mid day are trending downward (rates increasing). It's hard to handicap the effect (or non-effect) on MBS of any "agreement" on Greece's debt, so I'm trying to concentrate more on loans. Until rates move down for more than 3 hours, I'm staying with an early locking bias for most clients." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.75-3.875
- 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).