February 5, 2015
Mortgage rates held their ground today even as trading levels in bond markets suggested a move higher. This has to do with the heads-up I offered yesterday regarding the late-day improvement in market conditions that didn't manage to make it onto most lenders' rate sheets. From yesterday's commentary:
Bottom line: mortgage-backed-securities are now priced better than they were yesterday afternoon, yet the average lender is still priced worse. That suggests a bit of a head start for tomorrow morning as it's not uncommon for a certain portion of the lender community to hold off on fully adjusting rate sheets for rapidly changing market levels late in the day.
Today's trading levels were in a good range so as to avoid major impact to rate sheets. The tone in markets was slightly supportive throughout the day after overnight weakness. As such 3.625% remains the most prevalently-quoted conforming 30yr fixed rate for top tier scenarios. 3.5% is still a distant second.
Tomorrow brings the big Employment Situation Report. Historically, this is the single most important piece of economic data of any given month. While that continues to hold true, other non-data related events have conspired to rob it of much of it's past significance. Even so, it's still quite capable of motivating big short-term changes in rates, and in either direction depending on the tenor of the data. Longer term and bigger picture, the positive trend remains intact for rates, but floating through the jobs report is always a short-term risk.
Loan Originator Perspective
"Rates continue to stay low with small fluctuations either way on a daily basis but lots of potential risk factors are lurking any of which could move pricing significantly. We have the Monthly Jobs Report tomorrow, the ongoing drama in Greece and Europe, and a continued flow of economic data from around the world that ratches up the risk on a daily basis. The slower growth theme still seems prevalent creating an environment where floating for longer term closings may make sense, but I continue to believe one should not risk anything on short term closing of less than 30 days." -Hugh W. Page, Mortgage Banker, Seacoast Bank
"I continue to favor floating all loans despite the jobs report on deck for tomorrow. The jobs report which in past times was always a market mover has been pretty irrelevant for the past year or so. We also have very solid support on the benchmark 10 year note just above current levels at 1.84ish. My outlook remains the same, rates are trending lower and nothing has happened to change that outlook." -Victor Burek, Open Mortgage
"Yesterday’s strong late day gains in the bond market didn’t hold overnight as I hoped they would, but rate sheets weren't worse for the wear. US Treasuries have managed to stay range bound but with tomorrow Jobs report looming floaters will need to consider what a surprisingly strong jobs number could do to rates. We’re trading dangerously close to the 1.84 technical mark. If we can’t hold 1.84 after tomorrow mornings jobs report today’s rate will be sorely missed." -Jason B. Anker Vice President, Mortgage Lender
Today's Best-Execution Rates
- 30YR FIXED - 3.625
- FHA/VA - 3.25
- 15 YEAR FIXED - 2.875
- 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).