March 17, 2015
Mortgage rates continue gently lower again today, extending a recent winning streak that's seen improvements on 6 out of the past 7 days. While any winning streak is a welcome sight to fans of low rates, this one is most appropriately chalked up to the heavy losing streak intact for the 5 previous weeks. February ended up being the worse month for mortgage rates since the mid-2013 'taper tantrum,' and our recent improvements are possible only due to that fact.
In bouncing back from those higher rates the financial markets that underlie mortgage rate movements are essentially getting into a nimble position for tomorrow's FOMC (Fed) Announcement. It's not uncommon to see trading levels head back to well-traveled mileposts from previous journeys and the current territory is about as well-traveled as it gets. In terms of 10yr Treasury yields, the milepost is something just north of 2.0% (most recently 2.05, to be specific). As far as mortgage rates are concerned, the milepost is in view any time lenders are offering top tier clients a conventional 30yr fixed rate of 3.875% with a handful of more aggressive lenders quoting 3.75%.
As far as tomorrow goes, it's important to understand that rates can change significantly and quickly. It could easily be the case that your lender will not be able to accommodate lock requests during certain times of the day tomorrow. As such, you need to decide if you want to lock before the FOMC events (which begin at 2pm) or wait for their full effects to make it onto rate sheets. There won't be any middle ground there, for better or worse.
Loan Originator Perspective
"Another day of baited breaths as we await tomorrow's FOMC statement. Overall, rates have settled in a pretty defined range, FOR NOW, but that could easily change tomorrow, for better or worse. In my view, it's unlikely the Fed will emphasize economic headwinds enough to incite a rally to lower rates. It wouldn't take much positive rhetoric for us to lose ground though, especially if the statement implies Fed rate hikes sooner, rather than later. Floating? Better have your loan officer on conference call tomorrow afternoon. Things could change, and change in a hurry. " -Ted Rood, Senior Originator
"The much anticipated FOMC meeting adjourns tomorrow with the release of their monetary statement followed by a press conference with Janet Yellen. Market participants expect the word "patience" to be removed which is a signal that rate hikes could come sooner. A bullish statement and press conference will result in mortgage rates being pushed higher, while a bearish fed could help rates. Tomorrow will be volatile and floating could be very painful. I think the Fed will remove patience from their statement but i also think Yellen will be bearish during the press conference. Only float if you can afford a higher rate and payment on your mortgage." -Victor Burek, Open Mortgage
"All eyes and ears are on the Fed tomorrow. We are getting closer to the middle of the year where a large number of "pundits" expect the Fed to begin the process of removing patient language and head towards the first Fed Funds increase we've had in over 6 years. We'll get Fed policy language tomorrow along with new economic projections and a press conference by Chairwoman Yellen. This could be a high risk event so if you're closing is within 15 days I personally would not risk floating through tomorrow and after the meeting you may wish you had locked up a longer term closing as well. Be careful and take stock of your tolerance for risk." -Hugh W. Page, Mortgage Banker, Seacoast Bank
"We've had a great little run since NFP's sell off until today. I will be locking most loans closing within 10 days by end of business today. There will be a few loans I will float into tomorrow, pre-announcement, but only a very few that are closing inside of 15 days. Loans with 30+ days may experiment with floating as time value is at a significant premium today. Loans between 15-30 are in a tricky place. I would strongly recommend locking, but favor floating into the report as I think better rates/spreads are on the way." -Constantine Floropoulos, Quontic Bank
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).