April 1, 2015
Mortgage rates fell appreciably today, this time at the fastest pace of the current winning streak. In fact, it was the biggest move lower since the March 18th FOMC Announcement when markets dialed back their expectations on the timing of the Fed's rate hike. That's a topic that continues to be a key consideration for the bond markets that dictate mortgage rates.
Today's economic data served as more anecdotal evidence suggesting a weaker jobs report on Friday. The jobs report (technically, the "Employment Situation," but also referred to as Nonfarm Payrolls or NFP) is the most important piece of data when it comes to the economy's influence on Fed policy. The past few reports have been much stronger than expected, and markets have responded by quickly ramping up expectations for a rate hike. Today's report suggested that trend may be running out of steam. That's good for rates as investors feel it should further delay a Fed rate hike.
While the Fed's policy rate is not perfectly correlated with mortgage rates, when the Fed finally hikes, they will be doing so after more than 6 years of a record low funds rate. If nothing else, that's a symbolic gesture that signals another evolution in the Fed's removal of accommodation (the first being the end of QE). If the Fed is moving away from accommodation, it creates upward pressure for all rates. Fortunately, markets are already pricing in a fairly good chance of a rate hike this year, and mortgage rates are still near 2-month lows.
Specifically, many lenders moved down to 3.625% today in terms of the most prevalently-quoted conventional 30yr fixed rate for top tier scenarios. The majority remain at 3.75%, but that would change with just a little more improvement. For borrowers who are still seeing the same rate today, the improvements would have come in the form of lower closing costs.
Loan Originator Perspective
"Nice rally today following a much weaker than expected ADP employment report. This, as well as the components of the ISM data and regional manufacturing data, indicate a weaker NFP number on Friday. So floating through Friday could pay off, but we have a wild card in the form of wages. If Friday's jobs number is weaker than expected, but if income increases more than expected we might still see bonds worsen. So it is risky to float. I would strongly recommend short term closings lock up later today. Loans closing in more than 20 days might benefit from floating especially when you take into account Greece drama is building up as they have to make bond payments next week to the IMF which they might miss." -Victor Burek, Open Mortgage
"Rate markets had a strong day today, with both treasuries and MBS at their best levels in a month. I'm not sure rate sheets reflect all the gains yet, but that's not unusual. Tomorrow's economic calendar shows weekly unemployment and some manufacturing data, neither of which will have near the effect of Friday's March Jobs Situation Report (aka NFP). ADP's March jobs estimate missed expectations today, we'll see about NFP Friday. I have several floating borrowers, will be watching tomorrow's pricing to see if it's time to pull the trigger before the jobs report." -Ted Rood, Senior Originator
"If you are going to lock this week you have two real choices today or Friday following the NFP numbers. Today is the safe bet and a good one for bonds have been on a winning streak. However just like the bond market cheered the missed ADP report today they may also Cheer a potential miss on the jobs report and rally further. Of course this is speculation but today's pricing is real and locking should be seriously considered if you are closing within weeks." -Manny Gomes, Branch Manager Norcom Mortgage
"Mortgage Rates improved today and if you're considering locking in before Friday's Non Farms Payroll report you'll need to decide whether you want to lock today or tomorrow. I'd lock today. The last 2 days have shown some nice gains and it would be common to see a little of this given back before Friday's big report and a long weekend (half day on Friday). So if you're not interested in floating through NFP, then today's the day to lock. " -Brent Borcherding, brentborcherding.com
"From today until Friday we are in a high risk high reward realm. Technical levels are super important as we are trading at the bottom of the recent range. Floating into the next couple of days data for loans closing within 15 days is oblivious. Loans closing within 15-30 should strongly consider locking. Loans with 30-45 day closing time have a bit of flexibility, but with near multi-year lows on rates we shouldn't be greedy. Pigs get fat hogs get slaughtered. Lock em up. " -Constantine Floropoulos, Quintic Bank
Today's Best-Execution Rates
- 30YR FIXED - 3.625-3.75
- FHA/VA - 3.25-3.5
- 15 YEAR FIXED - 3.00-3.125
- 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 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 was a possibility that the bounce occurred in February, but European bonds got back to the task of improving in March. This has helped calm the domestic bond market's move toward higher rates.
- While more immediate, bigger-picture disaster has been averted, it's still a highly uncertain time for global financial markets. On the one hand, some believe we're in the midst of a race among world central banks to devalue currencies and lower interest rates. Others believe that the global economy is turning a corner and rates will grind higher. That creates a lot of volatility, and volatility is bad for mortgage rates. One result is that they have a slightly harder time keeping pace with movement in Treasuries. That can be good or bad, depending on which way markets are moving. The other result is that there really is no way to be sure that today's rates will be available a few hours from now. They could get better or worse, but the point is that there's more change and movement in the mortgage market so far in 2015.
- 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).