April 8, 2015
Mortgage rates managed a fairly uneventful day despite the presence of some bigger-ticket events. Actually, those events turned out to be the reason that things didn't move much. Until then, underlying market conditions were trending weaker for the mortgage-backed securities that dictate mortgage rates. They bounced back after the afternoon's 10yr Treasury Auction and the release of the Minutes from the most recent Fed meeting. The net effect on rate sheets was minimal, but the average lender is just a hair better than yesterday's latest offering. The most prevalently-quoted conventional 30yr fixed rate for top tier scenarios remains 3.75% with a few lenders down to 3.625%. Rate sheets are roughly in line with those seen on April 2nd.
As for the Fed Minutes--arguably the most interesting item on today's agenda--there were no surprises. As has been the case, some members favor a rate hike earlier in 2015 while others are thinking it will be closer to the end of the year. The Fed noted that "a couple" members don't see the first hike until 2016.
When it comes to mortgage rates, it's important to remember that the Fed rate hike doesn't directly correlate. The Fed Funds Rate informs the shortest term borrowing (overnight), while the average mortgage lasts about 7 years. The farther down that continuum of time frames we go, the less connected rates are to a Fed hike. As such, it's not some epic bogeyman to be feared as the harbinger of an irreversible rise in rates. That said, when the Fed does hike, it is also a signal that they are reducing accommodation in general. The next step in that process would be to stop reinvesting its holdings in mortgage-backed securities, and that would certainly impact rates. That's a bridge to be crossed when and if we come to it.
Loan Originator Perspective
"Rates managed to rebound slightly today so if you floated overnight you should be seeing better pricing. Today's 10 year bond auction was well received and the FOMC minutes didn't offer any bad surprises. Tomorrow we have our final auction of the week with $13b of 30 year bonds being offered to the highest bidders. Unless you must lock today to make a closing, I would hold off until after tomorrow. I am hopeful that we have a rally once the new supply of treasuries have been absorbed by the markets. Even if we don't, just holding at current levels should allow lenders to offer better pricing." -Victor Burek, Open 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 has helped calm the domestic bond market's move toward higher rates.
- 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 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).