May 22, 2015
Mortgage rates were unchanged on average today, though some lenders were slightly higher or lower than yesterday's latest rate sheets. This is a small victory considering that underlying markets suggested rates should move slightly higher. Mortgage rates are most directly affected by mortgage-backed-securities (MBS) which tend to trade in line with US Treasuries. After this morning's slightly stronger inflation data, bond markets moved lower in price and higher in yield--a classic reaction to that type of data. The most frequently-quoted conventional 30yr fixed rate remains 4.0% for top tier scenarios, though several lenders are an eighth of a point higher or lower.
In a broader sense, today brings another repetition of the recent cycle to a close. That cycle began in early May when rates finally ended a rapid run higher from mid-April's relative flatness. At the time, we were treated to 2 decent days of improvement (a Thursday and Friday) only to go right back to moving higher on Monday. The same pattern repeated in the following week. Now this week, it's arguably repeating again, although a day earlier than last time. That meant that Wednesday and Thursday saw improvements, leaving today to sort of waive in the wind by comparison. It's not an uncommon occurrence as markets gear up for an extended weekend.
The bigger question is whether or not it means anything about a bigger push back against the recent rise in rates. There's no easy answer here. Indeed, the last 3 weeks of trading is reminiscent of that which precedes some of the biggest historical moves. The problem is that some of them take rates much higher, while others take them much lower. The takeaway is that risk is extremely high and so is reward when it comes to locking and floating. Anyone interested in pursuing that reward should be well aware of the risks and prepared to accept a higher rate if markets move against them.
Loan Originator Perspective
"I am sticking with my advice from yesterday. If you floated into today, i would continue to float until Tuesday. Today's data on inflation did wipe away almost all of yesterday's gains, but i am hopeful after hearing Janet Yellen today. Many believed that once the Fed starts to hike they will continue to hike with each meeting. Today's speech from Yellen has raised the possibility of one and done, meaning one rate hike, then a delay in the next one to determine what impact the higher rates have on the economy. Since her speech was released, the bond market has started to move off the lows of the day..." -Victor Burek, Open Mortgage
"The Fridays before holiday weekends are notorious for bond markets and mortgage pricing retreats, and today is no exception. Rates are slightly up from yesterday, and many lock desks are closing early. We'll see what next week brings, for now my focus is on tonight's barbeque. Happy Memorial Day weekend, all." -Ted Rood, Senior Originator
"Today was a shortened trading day and trading desks were thin as they normally are ahead of a three day weekend. We did have CPI data come out which does show there is a hint of inflation at the consumer level and Janet Yellen was also speaking today but her speech did not appear to phase the market to much. From my point of view Equities have been trading at over bought levels all week long and have failed to move convincingly higher. Should they start to sell off they may do so at a quick pace and bonds may be able to benefit as a result. I am floating through this weekend." -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. 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).