June 1, 2015
Mortgage rates moved noticeably higher to begin the month, bringing the average conventional 30yr fixed quote back to 4.0% after briefly hitting 3.875% on Friday. Today's move higher follows 7 consecutive days where rates either held steady or moved lower. As we discussed last week, we were highly likely to see at least a temporary pull back some time soon. The rationale was that any time financial markets do one thing for several consecutive days, odds increase exponentially that they'll do something different soon.
That's all well and good, but the logic only applies to the initial pull back. It doesn't do as much to speak to the next move. From what we've seen today with respect to the recent range in rates, there is still plenty of reason to be cautious. That said, if last week's positivity had carried over into this week, it would still make sense to remain cautious unless we were seeing a substantial improvement. There are too many risky events on the near term horizon capable of causing significant movement. These events can either help or hurt, but the size of the potential movement is too big for most borrowers to want to risk floating through them. These events begin in earnest on Wednesday.
Loan Originator Perspective
"The beginning of June hasn't been friendly for rates. All of the gains we enjoyed the last week of May were wiped away rather quickly today. If you didn't lock on Friday, I would float overnight and see what tomorrow brings. Typically during sell offs, lenders tend to take away a little more than the price drop warranted." -Victor Burek, Open Mortgage
"Confirmation. That’s what today looks like to me. There’s been much written recently about the 2.1 to 2.3 range in 10 year treasuries and how we’re stuck there. I favor locking when we’re at or close to 2.1 and floating if we’re above 2.2. It’s a very narrow range with little to be gained or lost unless the range is broken. Borrowers should be mindful that is this NFP week so large fluctuations leading up to and including Friday’s NFP report can’t be ruled out." -Jason B. Anker, Vice President- Loan Officer at Salem Five
Today's Best-Execution Rates
- 30YR FIXED - 3.875 -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. That said, the upward momentum in rates during this move has subsided to such an extent that we can say markets are considering their next move.
- 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).