March 16, 2015
Mortgage rates fell modestly to begin the week following several weaker-than-expected economic reports. Economic data affects rates by motivating investors to seek out or avoid risk. In general, stronger data increases risk tolerance, and weaker data increases the demand for safer investments such as Treasuries and Mortgage-Backed-Securities (MBS), which dictate mortgage rates. Higher demand means higher prices and lower rates, all things being equal.
In the bigger picture, however, today's gains were modest, and keep market levels in a sort of holding pattern they've been in for 4 days now. It's not uncommon to see this happen leading up to a big-ticket event like the FOMC ("The Fed") Announcement coming up on Wednesday. Investors are looking for clarity on the Fed's plans regarding raising rates, among other things. It's worth noting that the Fed Funds Rate isn't directly related to 30yr fixed mortgage rates, but it would still likely be negative for rates in general, simply because it implies a willingness on the part of the Fed to dial back other accommodation. That "other" category includes policy that is currently benefiting mortgage rates--specifically, the ongoing reinvestment of Fed MBS income back into the MBS market.
The most prevalently quoted conventional 30yr fixed rate for top tier borrowers remained 3.875% today, but the stronger lenders stayed at 3.75%. 4.0% is becoming less common.
From here on out, volatility becomes an increasing risk heading into the Fed Announcement. As always, it can either work for or against us, but the point is that if it does work against us, the potential damage is bigger than normal.
Loan Originator Perspective
"The good news (for borrowers) this weekend was some verbal sparring between Greece and Germany. European fiscal turmoil hasn't been a huge factor for rates in recent weeks, but could certainly become so. Wednesday is the all important FOMC statement on its economic outlook for the US, and (potentially) hints on their timing to raise overnight rates. Anyone floating into Wednesday may want to verify with their lender that they CAN lock on short notice, should the Fed statement rattle rate markets." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.875
- FHA/VA - 3.5
- 15 YEAR FIXED - 3.25
- 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 was Europe and the introduction of European quantitative easing.
- With European QE having now begun, we're on high alert for a big picture bounce in European economic data, sentiment, growth, and rates. The more it looks like such a bounce is taking hold, the greater the risk that domestic bond markets and mortgage rates will also experience a big bounce higher. There's already a possibility that the bounce occurred in February, and we'd need to move back to January levels before ruling that out.
- While there's no guarantee that the current bounce will prove to be "the big one," it makes better sense from a risk/reward standpoint to assume it will be until that can be ruled out. That means favoring locking over floating in most scenarios, except when otherwise noted as a tactical opportunity.
- 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, conventional 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).