Mortgage Rates Still Near 2015 Highs. Lots at Stake Tomorrow
June 4, 2015
Mortgage rates bounced back ever-so-slightly today, ultimately doing very little to erase the damage done so far this week. The most prevalently-quoted conventional 30yr fixed rate remains 4.125% for top tier scenarios. This marks the second day with contract rates at the highest level of the year with improvements from yesterday seen only in the form of modestly lower closing costs.
Lenders primarily rely on the prices of mortgage-backed securities (MBS) in determining where to set rates. MBS are essentially bonds comprised of groups of similar loans. They trade during the day like any other financial instrument and today's prices would have suggested a better improvement than we saw. Even so, it's no surprise to see that discrepancy on a day like today. The first reason is volatility. In general, the more markets are moving, the more expensive it becomes for mortgage lenders to do business.
The second reason is the bigger of the two: tomorrow's Employment Situation Report (also referred to as "NFP" after its main component: nonfarm payrolls, or simply "the jobs report"). More than any other piece of economic data, this one has the power to move markets. With so much potential movement coming up tomorrow, lenders are understandably hesitant to change things too much, lest they simply bounce right back.
Tomorrows jobs report is particularly interesting because it will certainly factor into the Fed's decision on when to raise rates--something they seem intent on doing in 2015. The stronger the jobs data, the sooner markets will see the hike happening. While the Fed Funds Rate doesn't directly dictate mortgage rates, they are interconnected enough that mortgage rates have seen upward pressure when the market sees the Fed rate hike timeline accelerating. The point here is that tomorrow is very risky. Things could improve tremendously, but there's at least an equal risk that rates surge to new highs for the year.
Loan Originator Perspective
"Today was sure better than the last few days with bonds rallying. Despite MBS being up about 50 basis points from yesterday's lows, lenders have only passed along about .125 in improved pricing. If you floated, you can lock today with better pricing, but not much. As i have said many times, secondary departments are very slow to pass along improvements, but very quick to take away. Should you lock or float? Tough call, the trend hasnt been our friend but at some point trends do turn around. Only float if you can afford to be wrong. If you think the jobs report will disappoint showing fewer jobs or lower hourly earnings, tomorrow could be a very nice day." -Victor Burek, Open Mortgage
"The bleeding today stopped on the bond markets as treasury yields and mortgage bonds rebounded from the steep losses. We have either put a temporary ceiling on rates for the moment or this is a pause in a move higher in rates. What ever the case take today's better pricing and lock ahead of tomorrows NFP number. Things can get pretty ugly tomorrow if the number is a blow out one. " -Manny Gomes, Branch Manager Norcom Mortgage
"It’s been an interesting, if not painful week so far for rates. We’ve got a slew of data, press conferences and expert opinions all week and they have led to a pretty good selloff in the bond markets. Today we’ve got some of those losses back. We’ll take it. But tomorrow’s Jobs Report is a huge wild card. Are we in the eye of the storm or has it passed for now. We’ll know more tomorrow morning at 8:30 AM. Floating is pretty risky at this point, I feel. Rates have moved up a bit this week but could sprint up tomorrow if we get a big beat. If not we may fall back into the 2015 range again. What’s your risk tolerance? Float at your own risk tonight and try and get some sleep. Or lock and move on with your life. Tune in tomorrow." -Jeff Anderson, Loan Officer, Salem Five Mortgage, LLC
Today's Best-Execution Rates
- 30YR FIXED - 4.125%
- FHA/VA - 3.75
- 15 YEAR FIXED - 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. 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).