March 5, 2015
Mortgage rates held almost perfectly flat for the 2nd day in a row, despite market volatility caused by overseas events. The European Central Bank (ECB) announced details of it's quantitative easing program today, and ECB President Draghi held a much-anticipated press conference discussing the bond-buying program. Although seemingly very far removed from mortgage rates in the US, these sorts of European events have had a profound effect on domestic markets for several years now. Today's was one of this week's big ticket events.
Although it did cause some volatility in the bond markets that underlie mortgage rates, the day ended with rates remaining very close to yesterday's latest offerings. 3.875% remains the most prevalent conventional 30yr rate quote for top tier borrowers, though several lenders are at 3.75%. 4.0% is a bit on the high side of the current range of offerings.
With today's events leaving us flat, tomorrow's Employment Situation Report (aka "jobs report" or "NFP," due to it's headline "nonfarm payrolls" component) takes on even greater importance. There is a good case to be made for the last jobs report serving as a wake up call for rates. Before that, we'd seen the average jobs report have very little of its traditionally huge impact. This may have changed with the last report due to the gains in wages--something the Fed has been talking about quite a lot as a missing piece of the economic recovery.
Wages surged in the last report and it would make sense for bond markets (which ultimately inform mortgage rates) to be nervous about tomorrow's report confirming that surge. If it does, rates could rise very quickly. If the report is weaker than expected, however, it's possible for rates to catch a break as well. Markets can always move in either direction. NFP simply amplifies the potential.
Loan Originator Perspective
"The monthly payrolls report will be released tomorrow morning prior to lenders issuing rate sheets. Rates could go either way. I do feel that the number of jobs created will come in less than estimates. However, i think of more importance tomorrow is the average hourly wages component. There is no way to look at earlier reports to get somewhat of a gauge on earnings. You would think if wages were rising, retail sales would improve, but February's report showed a decline of -0.8%, much worse than the -0.4% drop expected. If you like the current pricing being offered, locking is the safest call. Float at your own risk." -Victor Burek, Open Mortgage
"Rate markets continued to stagnate today, with little movement as tomorrow's Jobs Situation Report (aka NFP) for February nears. My rate sheets were essential identical to yesterday's. It's a virtual certainty that tomorrow's WON'T be, since the report is released before rate sheets. Floating overnight is a roll of the dice. You might win, or you might shoot craps. It all depends on whether you enjoy "action" or not!" -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.875
- FHA/VA - 3.5
- 15 YEAR FIXED - 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).