June 10, 2015
Mortgage rates continued pressing into new highs for 2015. Most lenders are now quoting conventional 30yr fixed rates 4.25% on top tier scenarios. While this was already the case for many lenders yesterday, today's losses would then be seen in the form of higher closing costs. In terms of the "effective rate" (which factors in the associated upfront costs), today's rate sheets most closely resemble those seen in early October 2014.
As for reasons, things remain frustratingly opaque if you're looking for short term cause and effect. The problem we're dealing with is exceptionally broad and long-lasting. Thankfully it's not too complex. Investors gorged on European bonds throughout 2014 and early 2015, bringing rates to all-time lows and causing other rates markets (like ours) to experience some benefit as well. Now, investors are concerned not only that the feeding frenzy may have gone a bit too far, but also that it is just plain "over." That leaves us with 2 problems. If the long term move is over, that would obviously imply higher rates. But if the long term move was also overdone, that would imply a sharp snap back toward higher rates.
As of right now, we're still barely able to hold on to the notion that we're only dealing with the "overdone" part, though the question of a long term bounce toward higher rates remains up for debate. Don't assume this will change until it definitively does.
Loan Originator Perspective
"At the risk of sounding repetitive, we lost further ground on rates today. We've sold off 200 bps (2% to loan cost) on pricing since May 31st. The difference between this selloff and some prior ones, in my experience, is that the losses are compounded daily, as opposed to a pronounced move over a couple of days. LOCKING early is the only way to assure you'll get the pricing you're quoted. On the other hand, if you enjoy hitting on 17 in blackjack, you can always gamble that rates will miraculously improve and float your loan, but the risk/reward ratio is not in your favor." -Ted Rood, Senior Originator
"Late yesterday the 10 year Treasury broke 2.42 which was a bad sign and a clear signal to lock. Bunds also opened weaker this morning which pushed Bond yields even higher. As long as we remain above 2.42 in yield I’m recommending a defensive stance. The trading range that I thought we’d spend time in lasted less than two day. If you are a risk taker float and hope for that relief rally. If not you should lock, we can easily go higher from here." -Jason B. Anker, Vice President- Loan Officer at Salem Five
"Mortgage bonds cant catch a break and the trend right now is not our friend. Not locking in this market environment is a gamble and will cost you money. Until we see a shift in the tide it is better to be safe than sorry." -Manny Gomes, Branch Manager Norcom Mortgage
"Will the Fed raise rates? Will home prices continue their climb? Should you be locking in a rate? 1. Yes 2.No 3.Yes " -Robert Van Gilder, NMLS 263112, Professional Mortgage Associates
Today's Best-Execution Rates
- 30YR FIXED - 4.25%
- FHA/VA - 3.75
- 15 YEAR FIXED - 3.25-3.375%
- 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. There is much debate over whether or not the global economy is turning a corner, thus justifying a widespread move to higher rates. That's made 2015 significantly more volatile than 2014 for markets. This means lender rate sheets may change appreciably from day to day, and sometimes even several times in the same day.
- Bottom line: European Quantitative Easing helped push global rates to all-time lows in April. Now, the big risk for mortgage rate watchers is that we might have turned a long term corner. That risk is being compounded by speculation about the Federal Reserve raising rates by the end of 2015.
- May and June have amounted to the 2nd major move higher bounce so far this year. Every time this happens, we have to consider 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).