May 5, 2015
Mortgage rates haven't been able to catch a break recently. Case in point, over the past 3 weeks, there have only been two days where rates managed to improve even a little bit. Four out of the past six days have seen uncommonly big moves higher. These are the sorts of moves that we'd normally only see 2-3 times per month, so to see 4 of them in just over a week is alarming. In terms of conventional 30yr fixed rate quotes, several major lenders are now up to 4.0%, even for top tier scenarios, though many remain at 3.875%. Just one short week ago, 3.625% was widely available.
In the broader context, there has only been one day in 2015 where rates were any higher. Before that, you'd need to go back to November to see higher rates. It has been and continues to be the case the recent weakness should be taken seriously. That means that it makes more sense to favor a defensive strategy with respect to locking and floating. While history suggests rates will catch at least a temporary break soon, it also shows that there are occasions where such a break never comes (or comes too late to matter). In other words, there's no need to abandon hope just yet, but neither is there a reason to take risks this week.
Loan Originator Perspective
"Mortgage rates continue to worsen. We had a nice open this morning, but following the better than expected ISM Non Manufacturing data, rates took another step higher. Its hard to suggest locking once the damage has been done, but that is the safe move. If you are hoping for rates to rally, you will have to wait until after Fridays employment data. Weak numbers could reverse the course, but if we get numbers close or better than expected, rates will worsen as a hike in rate by the fed will be just about a certainty this year." -Victor Burek, Open Mortgage
"LO's and borrowers might have extra motivation to consume copious amounts of tequila today, as rates continued their relentless march upward. Since Friday, April 24th, we now lost 100 bps (or 1% of the loan size in additional cost) in 8 trading days. It's safe to say those who failed to lock last month are regretting that decision now. I'll be in a "lock at loan creation" mode until the tide turns, which could be quite a while from now at this rate." -Ted Rood, Senior Originator
"Rates have now slid higher for over a week and this is about the point where those that have been floating may reach their pain tolerance and lock in a rate. This also tends to be the point where things tend turn and rates either stop heading higher or reverse course and head lower. I am not saying float float float but simply don't jump the gun and lock because you are sick of the current trend." -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.875-4.0%
- 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).