May 14, 2015
Mortgage rates finally caught a break today. This is quite a welcome development (indeed, yesterday's commentary pointed out that no breaks were being caught!), but the magnitude of the improvement left something to be desired. Still, we'll take what we can get at the moment. For most borrowers, today's improvement will simply decrease the closing costs associated with the rates they were already being quoted. For conventional 30yr fixed loans, the average lenders remains at 4.0% for top tier borrowers. A few of the most aggressive lenders (emphasis on few) are at 3.875% while more than a few are up at 4.125%.
Today's positivity creates a natural question: is this the beginning of a bigger bounce? We may well have asked the same question late last week after two days of improvement on Thursday and Friday. The consensus at that time was that we'd need to see more evidence of strength before considering that it was anything other than a correction given the massive momentum heading toward higher rates. Now today, with the past 3 trading sessions resulting in successive 2015 highs for rates, this one minor bounce back is also clearly not enough to suggest anyone lower their guard or abandon their lock bias.
Unfortunately, there is no way to know which day will be THE day when the bigger bounce begins to happen. It very well could be today, and betting accordingly would have a big payout, but it would take an extreme level of risk tolerance--not to mention 'willingness to lose money if you're wrong'--to gamble on that being the case. Recent and long-term history suggest that the best course of action is to lock until the tenor of the market has decidedly shifted.
Loan Originator Perspective
"Mortgage Rates improved slightly today. I personally do not believe that we are not out of danger and rates could still be on the arise. I'd personally need to see a lot more improvement than this to feel comfortable that the tide's turned and that rates are improving. I'd lock today." Brent Borcherding, brentborcherding.com
"In a refreshing change of pace, we gained some ground in bond markets today. Even so, we're still well above last Friday's rates, and it's way too early to assume our sell-off has run its course. Current MBS prices are still about 100 bps (1%) worse than they were last Friday. Personally, I'm still in "lock early" mode. I'd love to be proven wrong, but just don't see enough evidence yet to start floating loans." -Ted Rood, Senior Originator
"If you risked floating over night, well done. Rate sheets did improve this morning and many lenders have even repriced for the better as MBS have been able to hold onto some gains. Our final auction of the week is over and it was disappointing, but supply is out of the way. I am not convinced this mini rally today has legs, but I think it is worth the risk again to float overnight to see if it can continue. As always, only float this market if you can afford to be wrong. " -Victor Burek, Open Mortgage
"Yesterday's stellar bond auction created a sell off and today's poor auction did not. We are living in interesting times and often these times can bring opportunities or punishments. The way I see it at the moment bond yields appear to be forming a top. If seller exhaustion is finally here in bonds and buyers start to flee the equity market we may have a huge opportunity on our hands to float and benefit. Of course this does come with risk and things could change quickly." -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.00%
- FHA/VA - 3.75
- 15 YEAR FIXED - 3.125-3.25
- 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).