April 28, 2015
Mortgage rates made it right to the doorstep of tomorrow's big-ticket events with very little movement over the past 5-6 weeks. Once at the doorstep, however, they began losing their composure. This happens from time to time on the approach to events that have a lot of market movement potential. Even before the events themselves, markets began taking a 'lead-off' in one direction or the other. The time around, the lead-off happens to be toward higher rates.
Whereas 3.625% had been fairly common among more aggressive lenders quoting conventional 30yr fixed rates on top tier scenarios, it's quickly vanishing this afternoon. 3.75% is once again clearly dominant. If you are looking at the same contract rate today vs yesterday, the closing costs will likely be higher. If they aren't, locking makes a lot of sense.
Understand that tomorrow's data and events really can take rates quickly in either direction. The first installment of volatility is after the 8:30am GDP data. Most lenders don't put out rate sheets by then, meaning that you're at the mercy of GDP if you float overnight. The afternoon's Fed Announcement is an even bigger potential market mover. While that one will come out well after lenders' first rate sheets, there is very little chance you'd be able to lock a rate before lenders adjusted rate sheets in the event markets move against you.
Loan Originator Perspective
"Hopefully you have followed the advice of late and have locked in. Tomorrow we get the first read on 1st quarter GDP and the FOMC announcement. I dont see how GDP will help rates. If it is worse than expected, it will be blamed on weather...if better than expected, rates will rise. So best case, GDP doesn't hurt us. If you are hoping for better rates, then we need the FOMC announcement to at least indicate that rate hikes will be put off longer. Very risky to float into tomorrow as the Fed seems determined to raise rates no matter what sooner rather than later." -Victor Burek, Open Mortgage
"Rates hunkered down today in anticipation of tomorrow's FOMC statement. While we're still in recent pricing ranges, we're near the top, and a bullish statement tomorrow could push us through it. As of 2:30 EDT, 10 lenders had recalled earlier rate sheets and worsened their pricing. If you're floating, check with your loan officer to make sure your loan will still work if rates continue upward. Lenders will post rates tomorrow before the statement is released, but those rates will likely be conservative in case the Fed alludes to stronger economic conditions." - Ted Rood, Senior Originator
"Mortgage Rates worsened today ahead of tomorrow's FOMC rate announcement. We always see this type of repositioning before such an event, and it is not an indicator, one way or another, as to what will happen tomorrow. Floating through such an announcement always carries great risk and there is NO DOUBT the safest option is to definitely lock. That said, you're not reading this for simply the safest option your looking for some "guidance"....well, my gut says we improve and floating will pay off." -Brent Borcherding, brentborcherding.com
"Mortgage bonds fell today ahead of the all important FED decision which will be released tomorrow. Floating is riskier than normal but given the tear stocks have been on and extreme sideways trading range in mortgage bonds, floating can also yield higher than normal rewards. One thing is for certain and that is lenders will be quick to reprice for the worse tomorrow following the report as they will also be anticipating a large market reaction. If you plan was to float into the meeting and lock if things go sideways you should really consider locking today." -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.75%
- FHA/VA - 3.375-3.5
- 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).