April 29, 2015
Mortgage rates moved firmly up to the highest levels since March 17th. Incidentally, there was a Fed Announcement on March 18th and another Fed Announcement today. While rates generally moved lower with good momentum after the last Fed Announcement, we shouldn't be quick to assume that today's Announcement is the reason they moved back higher.
In fact, today's weakness was intact before US markets even opened. European trading has frequently contributed to noticeable overnight movement in US Treasuries which, in turn, always contribute to movement in the mortgage-backed-securities that dictate rates. Europe had a rough night. Their benchmark lending rates have been threatening a move higher since mid April, but it never really materialized until today.
All of the above got the day started off on the wrong foot for interest rates in the US. Even the weak reading on GDP (which normally would help rates move lower) only made for a temporary speed bump in the negative momentum. That momentum ran its course by 9am, meaning that lenders were looking at the worst trading levels in bond markets in 6 weeks right as they were generating rate sheets. As such, rate sheets suffered. The silver lining was that things never got worse from that point on, and most lenders were able to drop rates a bit by the end of the day. Even after those improvements, some lenders are still closer to 3.875% now on conventional 30yr fixed quotes for top tier scenarios. 3.625% is all but a memory, and is replaced by 3.75% as the more aggressive of the two typical quotes.
Loan Originator Perspective
"Rates took a beating today despite GDP data being much worse than expected. The FOMC statement has also come and gone offering no real surprises, but did leave the door open to a rate hike later this year. Maybe a bigger factor driving rates last night and today was a massive sell off in German Bunds; their equivalent to US Treasuries. At this point, the damage has been done to rate sheets. I would float all loans overnight." -Victor Burek, Open Mortgage
"We finally got the Fed Statement this afternoon, and it was predictably obtuse, with references to economic weakness, but also comments suggesting growth could pick up. After the smoke cleared, bond markets improved slightly, but we haven't recouped any of the prior losses, and rates are near levels last seen in late March. Given this morning's weak GDP data, I would have expected a more robust rally. For now, I'll stay with my locking bias, until we see defined movement towards better rates. Hope that's soon, but not willing to bet my clients' funds on it!" - Ted Rood, Senior Originator
"Mortgage Rates worsened slightly again this morning ahead of the Feds announcement concerning rates. Since the announcement rates not only stabilized but have started to improve. The only problem is that the improvements haven't really started making its way to rate sheets (available for consumers) yet. If you floated your loan into the Feds statement I see no reason to lock any earlier than tomorrow. I'd continue to float and see if tomorrow shows continued improvement." -Brent Borcherding, brentborcherding.com
"We did not get the sell the rumor and buy the news market reaction I was hooping for but bonds did improve a bit following the FED decision. I won't go to much into detail regarding the content of the report. It does look to me like we may be either hitting a ceiling in the current rate range or possibly breaking out into a higher rate range. Floating can be high risk at this point. " -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).