June 9, 2015
Mortgage rates bounced back up to the highest levels of 2015 today. Yet again, it was a frustrating and seemingly serendipitous move, unable to be blamed on any particular event or data. Markets and market-watchers don't like this because it makes it hard to know when and why the next big move will happen. Even so, the phenomenon has been a fairly constant companion in the past 2 months as investors consider the possibility that global interest rates bottomed out in April. With a big-picture consideration like that, trading in bond markets has become less about reacting to "normal stuff." Instead, investors are merely trying to make their way toward higher rates as quickly as possible just in case this move is "the big one."
Where this stops, nobody knows. But as we've discussed since the inception of this rate spike in late April, it doesn't make sense to bet against the momentum until and unless it's convincingly defeated. Anything else is an attempt to catch a falling knife and this one is much bigger and more dangerous than most.
Most lenders remain at 4.125% for conventional 30yr fixed quotes on top tier scenarios, but an increasing number of them moved up to 4.25% today.
Loan Originator Perspective
"Borrowers should continue to play defense here as risks continue to be very high. We don't have any reliable clues that rates may pause or go lower in either the short, medium, or long term. That means locking your loan at the first opportunity to protect the pricing in front of you right now is probably prudent. " -Hugh W. Page, Mortgage Banker, SeacoastBank
"Well, another day, another drop in MBS (worsened rates). Even a White House bomb threat didn't spur a rally, which it certainly could have. I see no market motivation for bonds to improve, and until I do, see no reason to float. As many stock market investors and gamblers learn, "chasing losses" often results in making a bad situation worse, and this may be the same scenario. Why bet against the market? I am locking new applications." -Ted Rood, Senior Originator
"Today we may have seen a rejection of 2.42 on the 10 year which would help to support the theory that we’re settling into a new trading range between 2.42 and 2.29. That’s the optimistic spin at least. I would consider carefully floating at this point but if I did I would stay very close to my loan officer. My biggest fear would be premarket selling due to a negative move by Bunds, most lock desks (and LO’s) are asleep when the Bund starts to trade in Germany. " -Jason B. Anker, Vice President- Loan Officer at Salem Five
"The recent trend is continuing with the benchmark 10 year note testing the highs of the new range at around 2.43. Floating remains very risky and only those who can afford to be wrong should consider floating. As long as the 10 year can hold below 2.43, i would float overnight following the strategy of float the highs lock the lows, but i do also think you will not gain much by floating. Until the 10 year can break below 2.29, lenders will be hesitant to pass along much gains." -Victor Burek, Open Mortgage
"It’s playoff time in the NBA and the NHL. What does that have to do with mortgage pricing? This time of year DEFENSE wins. And for rates, it’s very prudent to be on defense. Currently market sentiment seems to be for higher rates, at least in the short term. If you’re closing in the next few weeks I’d think it’s prudent to lock. One headline or econ data point that isn’t bond friendly could push rates even higher than their current 6 month highs. D-FENCE !!!!!" -Jeff Anderson, Loan Officer, Salem Five Mortgage, LLC
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).