June 12, 2015
Mortgage rates looked like they might come down a bit today. The morning hours were generally positive for bond markets, including mortgage-backed-securities (MBS) which lenders use to set rate sheet levels. Indeed most rate sheets were slightly better than yesterday's and several lenders lowered rates mid-morning. But when European markets closed, US market momentum shifted and the gains evaporated. Lenders sent out mid-day revisions, raising rates back in line with yesterday's levels. The average conventional 30yr fixed rate quote remains in a range between 4.125% and 4.25%, depending on the scenario. More aggressive lenders are quoting lower rates, but those are the exception at the moment.
In the context of 2015's market movement, it's no surprise to see Europe having a big effect on mortgage rates. As we often discuss, there's an indirect connection between interest rates and Europe and the US, and when one is moving enough, the other tends to feel it.
Next week brings the FOMC (Fed) Announcement. This raises an important question: what do markets care more about between the Fed and Europe? There's no clear winner here. If the Fed says something interesting enough, markets will move, just as they would if something interesting enough happens with European markets. Either can have a big enough effect to push rates significantly higher or lower. The risk of floating is higher than the reward in those cases for the simple fact that loan pricing deteriorates faster than it improves given equal market movement in either direction.
If next week ends up being bad for rates, it could be the sort of "bad" that leaves a lot of people scratching their heads, wondering how things went so high, so fast. Risks are centered on Wednesday afternoon, but there are plenty of historical examples of markets taking a "lead off" ahead of a big event. Whatever you decide to do, make sure you have a plan as to when you'll lock and under what conditions if you're currently floating.
Loan Originator Perspective
"We had a nice start to the day as Thursday's rally continued and loan pricing added to yesterday's gains. However, bonds hit a wall about 11AM Eastern, and have been retreating since. We haven't given up all the gains, but it is discouraging to see a potential rally fade so quickly. The FMOC meets next Tuesday/Wednesday, and their statement and economic outlook could greatly improve, or hurt rates. For now, it appears we've seen the best pricing we will until Wednesday, so if you're floating, I'd pull the trigger now, or plan on waiting until waiting until after the statement. A growing economy=faster Fed rate hikes=higher rates. Caution is my word of the day." -Ted Rood, Senior Originator
"I hate to suggest locking on Friday, especially this Friday. Lenders have been so much more conservative with their pricing today...passing along not even half the recent gains, but floating this weekend is risky. If we get any news of a Greek debt deal, rates will take a turn for the worse. If you want to roll the dice and float, you better hope we do not get positive news. As i have been saying, only float if you can afford to be wrong!" -Victor Burek, Open Mortgage
"After a particularly brutal June so far, yesterday we saw some good improvements to stop the bleeding. Heading in to the weekend and facing an upcoming week featuring the June Fed Meeting and a press conference with Chairwoman Yellen caution should be the rule. Potential turmoil or the resolution of it in Greece is always a threat to us so coupled with the Fed risk levels are high. I would be locking in the recent gains now until we have some signs of a more defined direction that might give us a clue as to the next trend." -Hugh W. Page, Mortgage Banker, SeacoastBank
Today's Best-Execution Rates
- 30YR FIXED - 4.125%-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).