May 1, 2015
Mortgage rates are in the midst of a serious move higher. This requires some context though, because not all serious moves higher are the same. In the current case, the serious move takes the most prevalently-quoted conventional 30yr fixed rates up to 3.875% for top tier borrowers, with more aggressive lenders still at 3.75%. Historically, that's not bad at all. In fact, apart from almost any other time in the history of mortgage rates, being anywhere in the 3's is excellent.
In addition to being historically low, the other caveat is that the 'serious move' looks larger because of the recently narrow range. In other words, rates haven't been moving much for more than a month. Relative to that lack of movement, this week has been rather abrupt, even though it's nothing too special in a historical context.
But the "yeah buts" end there. Throughout the month of April, we'd discussed the fact that rates seemed to be having a hard time moving lower past 3.625%. At the same time, 10yr Treasury yields (THE broad benchmark for interest rates in the US) was having a hard time moving lower than 1.80%. To add insult to those injuries, European bond markets (which have been giving an awful lot of guidance to US bond markets over the past year), looked to be at risk for an even bigger bounce--one they're now seeing.
The conclusion is that this is indeed a fairly serious move. We've only seen 2 other examples of rates moving this much higher in this time frame since the beginning of 2014. On both those occasions, we were able to draw some solace from the fact that Europe's quantitative easing program was yet-to-be-announced and that European rates likely had farther to fall. It is still the case that the long term trend toward lower rates is NOT yet defeated. BUT, with each iteration of these big bounces, the risks increase that they'll be longer lasting or increasingly large. Even if this isn't the big one, it makes sense to assume it is in terms of lock/float strategy.
Loan Originator Perspective
"The new month brings no relief to rates as they worsened once again today. Rates are still holding in the long term down trend, but we are right at the top. Following the range strategy of float the highs, lock the lows, i would float over the weekend. This is a risky strategy because if the range breaks, it could get ugly very quickly...but it hasnt broken yet. " -Victor Burek, Open Mortgage
"It was another tough day for rate markets on Friday, as we've now lost about 100bps (a full 1% to the pricing of an average loan) this week. Perhaps the most disconcerting aspect of our losses is that they occurred despite some downbeat economic data, which typically leads to lower rates. The trend is NOT our friend at the moment, and we've broken several key support levels. Rates will get better sometime, but looks like they'll get worse first. I'm in a locking mode for all but the most aggressive/optimistic borrowers." -Ted Rood, Senior Originator
"Its official mortgage bonds are in an downtrend which means rates can and will go higher if we remain in this trend. The only bright side I see is that mortgage bonds are not over sold and could reverse any day not but could also remain oversold for some time before they do reverse. If you are risk adverse you should be locking any and all files while we remain in this trend. Once the trend breaks we may be able to consider floating." -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.75%-3.875%
- FHA/VA - 3.375-3.5
- 15 YEAR FIXED - 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.
- 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
- 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.
- Unfortunately, this didn't result in a strong move past the year's previous lows. In fact, rates at home and abroad hit a floor of sorts and flat-lined. They've begun moving higher at a quick pace, and we're once again forced to confront the possibility that this will be a bigger, longer-lasting correction. Until such a thing can be ruled out, Locking makes far more sense.
- 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).