May 18, 2015
Mortgage rates moved higher out of the gate for a second straight week, though today's jump was smaller than last Monday's. The most prevalent conventional 30yr fixed quote remains 4.0% for top tier borrowers, with a few lenders still down at 3.875% and fewer still at 4.125%
Last week we talked about how the similarities in the past two weeks served as a good reminder of the risks involved with floating, but that Friday's improvements suggested there was a better chance of consolidation. Despite today's weakness, the chances for consolidation remain. Even after moving higher today, rates are still lower than the first four days of last week.
One important thing to keep in mind is that 'consolidation' refers to a period of time where rates aren't moving much that follows a sustained move in one direction. That 'consolidation' doesn't necessarily imply a bounce back in the other direction. In the current case, rates made a sustained and determined move higher from mid-April and now look like they're at least attempting to level-off. It remains to be seen if this consolidation materializes into a bounce lower or gives way to another move higher. We may not find out until after Wednesday's FOMC Minutes.
Loan Originator Perspective
"Bonds cant seem to catch a long term break and sold off once again today. While it does not feel like the up trend in yields will continue it cannot be out ruled. For now, I would float into tomorrow as most of the damage was done when rate sheets were issued this morning and with mortgage bonds near support the risk of significantly worse pricing over night is low." 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).