March 18, 2015
Mortgage rates plummeted today, relatively speaking. While the average improvement of 0.10% might not look like much at face value, it's the biggest one-day drop we've had in 2015, and in a league with very few other players historically. The motivation for today's movement was twofold, but certainly the biggest factor was the Fed announcement and Yellen's press conference. In short, markets falsely assumed that the recent run of super strong Nonfarm Payrolls numbers (the "jobs report") would materially accelerate the Fed's rate hike outlook. Beyond that, too much focus had been placed on the word "patient" as an important indicator of the Fed's stance.
Not only did we see a Fed that looks just as committed to patience (despite removing the word itself from the statement), we also saw significant downgrades in the inflation and growth outlook. While the Fed may say that they expect inflation to pick back up after the temporary effects of low oil prices work their way through the economy, IF inflation DOES NOT pick back up, today's statement suggests they won't be keen to hike rates. This is also in line with recent speeches from the more influential Fed members (like Yellen) who have said they expect inflation to go lower before it goes higher.
With today's improvement, the most prevalently-quoted conventional 30yr fixed loan for top tier borrowers falls back to 3.75%. Some lenders will remain at 3.875% today, but many feel that those lenders "held back" from passing on the full effect of the market movement--not an uncommon occurrence after a volatile swing like today's. Clearly, this improves what had been a fairly lopsided lock/float outlook. That said, if you were floating, hoping for gains, and if today delivered, you'd be tempting fate to some extent by not cashing in your chips.
Loan Originator Perspective
"A dovish Fed Statement lead to rapidly improving rates today. We broke some well established ranges on treasuries, which may indicate rates have room to improve further. I'm officially in float mode, until the tide turns. For now, both the Fed and the trend are our friends!" -Ted Rood, Senior Originator
"If you floated into today's important FOMC statement, you are being well rewarded. The Fed did as most expected by removing "patience" from the statement, but the rest of the statement and accompanying press conference painted a much more dovish outlook on rate hikes. As of 3pm, many lenders have repriced better but as usual they are slow to pass along the improvements. I would float all loans overnight." -Victor Burek, Open Mortgage
"Mortgage Rates improved slightly today for some lenders, but that is only because they have not passed along the gains implied by market gains. Today's Fed press conference has likely pushed back any chance at them raising rates to much later than initially expected, and the treasury market and Mortgage backed securities have rallied appropriately. However, again, lenders have not passed along these gains yet. Floating is a very good idea, in my opinion, as if we hold these levels we'll see lenders improve pricing over the coming days and should treasuries or MBS reverse course, there is some room to do so without rates worsening. " -Brent Borcherding, brentborcherding.com
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).