June 25, 2015
Mortgage rates remained near recent highs for a 2nd straight day after rising quickly on the first two days of the week. With the exception of only one other day, the past 3 days have been worst of 2015. Lenders continue quoting conventional 30yr fixed rates of 4.125% on top tier scenarios. On a positive note, today's market movement suggested more weakness than we actually saw on rate sheets. That said, yesterday was the opposite. The conclusion is that lenders are defensive and are leaving themselves a cushion on rate sheets to absorb the volatility and weakness that has quickly become the rule vs the exception.
The scary thing is that the past 3 days have actually been very well contained in terms of market movement. Historically, that's not the kind of thing you want to see when rates are near their highest levels of the year. If we must face the year's highest rates, it's preferable to see a huge, 1-day move to the highs that ends up bouncing just as hugely back in the opposite direction. Instead, we've moved up with relatively little protest and obviously without a burning desire on the part of market participants to move back down.
The only positive thing to be said for such an environment is that it makes the decision to lock or float much easier. There's just too little potential reward for holding off on locking if you're able to do so. While there have been pockets of a few days here and there that have seen rates fall, the gains haven't been great, and you'd have to essentially guess that the next day would be positive without any trends supporting the decision. Logically then, we'll need to actually see those trends (more good days than bad) before changing the currently defensive stance.
Keep in mind that next week could be extremely volatile with markets being closed Friday and the big Jobs report on Thursday.
Loan Originator Perspective
"My advice remains same, floating is too risky. If you are a risk taker, what you need to hope for is the Greek debt deal to fall apart this weekend. It appears to be going that way, but before you float based on the today's Greek debt drama keep in mind that the ECB has been very effective at kicking the can and coming up with some kind of resolution. " -Victor Burek, Open Mortgage
"Rate markets treaded water Thursday, staying range bound, as a decent bond auction and more tough rhetoric from Greece's creditors made little impact. There's no conviction for lower rates now, in my opinion. I'll take "not higher" rates, but am still concerned that it wouldn't take much for them to rise further. I'm locking early, rather be safe than sorry in this market. " -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 4.125%
- 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).