May 7, 2015
Mortgage rates finally dug in their heels and made some slight improvements today. For the past 4 days, they'd moved higher at the fastest pace of the year for any other 4-day period. The gains weren't extensive though, and many lenders are still quoting conventional 30yr fixed rates of 4.0% for top tier scenarios. 3.875% is slightly more common than it was yesterday, but in general, most of the changes were seen in the form of upfront costs (as opposed to the note rate itself).
The timing of the improvement is ironic and potentially frustrating for rate watchers as it falls on the eve of the exceptionally important Employment Situation Report (aka, 'jobs report' or NFP). This is the single biggest piece of economic data on any given month, and it has more power to move rates than any other economic report. Additionally, it is released in the morning and markets will have long since reacted to it by the time lenders are ready to issue their first rate sheets of the day.
This means that you're either locking in today's modest gains, or rolling the dice with an even bigger movement tomorrow. On any other day of the month, we could probably draw enough solace from today's market movement to balance the lock/float outlook somewhat. In other words, it is indeed significant that rates finally had a good day today, and it could be worth it to see if it's a turning point in a trend that has been almost exclusively against us for several weeks. But with so much potential movement coming up tomorrow, that's not a safe assumption. Anyone floating needs to understand the risk of loss is high. Anyone locking should already be resigned to the possibility that you may soon be watching rates fall back down into April's range, but you accepted that frustration in exchange for ruling out a much bigger move higher.
Loan Originator Perspective
"As of mid day, bond markets were slightly above opening levels, which hasn't happened in May. It's still way too early to say our losing streak is over, but you have to start somewhere. Tomorrow's jobs report may send rates either way, or not move markets at all, if it comes in near expectations. Momentum is still against us, but at least there's a glimmer of hope on the horizon. My loans are locked, and will continue to be until we start recouping more of the ground we lost over the past 2 weeks." -Ted Rood, Senior Originator
"The streak of worsening rates ended today with a decent rally. Despite the rally, many lenders are still priced worse then yesterday. Floating into tomorrow is risky. I am hopeful that a good report might already be priced into the markets as rates have moved a long way in a short period of time. That said, if you can handle the risk, i would float into tomorrow. I think we will get another weaker than expected report." -Victor Burek, Open Mortgage
"Finally an up day for mortgage bonds and a better day for rates. Now the temptation to lock ahead of tomorrows jobs report may set in to try and capture this better pricing. I am still in the float camp as I have been since Tuesday of this week. Rates ran up to much in a very short period of time and recent jobs data points to a number which will either meet or miss expectations. Should this happen today's rally will extend and rates will start coming back down." -Manny Gomes, Branch Manager Norcom Mortgage
"Mortgage Rates have finally improved today after nearly two weeks of worsening. In my opionion, this creates a locking opportunity before the important Non-Farms Payroll announcement tomorrow. This is absolutely a conservative stance, but at this point I believe acting conservatively is the best stance." -Brent Borcherding, brentborcherding.com
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).