May 20, 2015
Mortgage rates are ending the day very close to unchanged, following what was--by all rights--a supportive reading of the Fed's April Meeting Minutes. The big, nasty surprise that may have been lurking (potential rate hike arguments for June) was instead ruled out. The Fed noted that many members agreed that the economy wasn't likely to make a strong enough case for a June rate hike. That said, neither did the Minutes suggest the Fed was reevaluating their general game plan of hiking in the 2nd half of 2015.
But even then, there just wasn't much of a reaction at all. The absence of a reaction means that trading levels in bond markets were holding fairly steady. If they were moving drastically, or even just moderately, lenders would likely be adjusting rate sheets higher or lower accordingly. As it stands, however, there were very few re-prices, and many of them can be attributed to lenders simply being cautious ahead of the Fed and letting that guard down afterward, to some extent.
While the general lack of reaction may have something to do with the fact that there is a 3.5-day weekend coming up for Memorial Day, it certainly has a lot to do with European markets being the key motivation for broader bond market movement. That's not the sort of thing that adheres to the same sort as Fed meetings or Minutes. The conclusion is that volatility remains a constant risk until/unless we can confirm the big-picture shift toward higher rates has been defeated.
Loan Originator Perspective
"Mortgage rates remained at the same levels today. Analysis, at date, seems to rely solely focused on Europe and as the yields in Europe rise, they do the same here in the US. Until we see clear evidence rates are moving lower, momentum still remains with rising rates. Lock now." -Brent Borcherding, brentborcherding.com
"We didnt get any surprises from the FOMC minutes other than a June rate hike is most likely off the table. One major driver of the current trend in rates is the massive selloff in German Bunds. And today, Bunds traded most lower, but going into their close they shot much higher moving from .58 to .63. I think their move was in anticipation of the FOMC minutes indicating a sooner rate hike. Hopefully tonight, Bunds can rally back which should help our markets tomorrow. That said, i think floating overnight is worth the risk. " -Victor Burek, Open Mortgage
"While few lenders have repriced, MBS are slightly higher this afternoon. I still contend it will take a serious motivation of some kind to return us to late April's improved rates, and until that arises, I'll recommend my borrowers lock sooner, not later." -Ted Rood, Senior Originator
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. Those risks are being compounded by speculation about the Federal Reserve raising rates by the end of 2015.
- We're in the middle of the 2nd big, ugly bounce so far this year and once again forced to confront the possibility that this will be a big-picture, long-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).