April 21, 2015
Mortgage rates are on the warpath, blazing a ferocious trail in a more sharply sideways direction than we've seen in recent memory. This won't last. It never does. But it's, as yet, unclear what the catalyst will be for the breakaway. From there, it's even less clear if the break will be higher or lower. A case can always be made for either, but certainly, cases for rates bouncing higher have been much less tenable over the past 30 years (though they have their moments, like the Spring of 2013). Whether or not you see one here will depend on your time horizon.
Even in long term downtrends (like the one stretching back to the beginning of 2014 fairly reliably), there are periodic corrections that mark good opportunities to lock in rates. With that in mind, it's worth considering that rates are experiencing this flatness right in line with the best levels in more than 2 months. Historically, these have been great opportunities to lock for anyone with an approved loan in process. For those with longer-term time horizons, floating isn't an insane idea here, but be sure to set a line in the sand where you'll lock at a loss if markets move against you.
Loan Originator Perspective
"Mortgage bonds have been stuck in a very narrow range for almost all of April. It is safe to say this can not last forever and normally a break out occurs to the upside or downside after an extended period of sideways trading. A couple of things to consider when trying to forecast which direction the break may occur. German Bund yields appear to have bottomed--at least in the short term--and may head higher. Equities also appear to be turning a corner. In the case of a stock sell-off, it's possible that some of that money makes its way back into bond markets, which would help rates move lower. If you are in the camp which believes bonds may improve and rates can decrease then float and hope it comes to fruition. If you are happy with your rate and do not want to take on market risk lock in." -Manny Gomes, Branch Manager Norcom Mortgage
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 helped calm the domestic bond market's move toward higher rates. April's weak employment report helped solidify it.
- It's 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 had been creating a lot of volatility, which made for uncertain fluctuations from day to day. But those periods of volatility have been interspersed by utter indecision where rates are effectively drifting sideways with no conviction and no desire to get off the fence. We have yet to see a truly big/scary move higher after 2015's first (and so far "only") big push toward higher rates that ended at the beginning of March. We've been sideways right in between the highs and lows ever since.
- 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).