July 10, 2015
Mortgage rates move sharply higher for a 2nd straight day, now fully erasing all of the improvement seen since July 1st. The same risky, volatile overseas events that helped rates fall earlier this week are now pushing in the opposite direction. Specifically, fears over a more pronounced Chinese stock market crash have subsided after 2 days of gains. Even more of a focus for financial markets is the fact that Greece maintained a surprising amount of traction this week in their efforts toward securing more bailout funding.
Both of these situations had previously caused investors to seek safety in the bond markets of big, stable countries like the US. Extra demand in bond markets results in lower rates, as seen earlier this week. But even as rates were falling, we discussed the fact that these underlying reasons were not the sort of stable motivations we should rely on for long term improvement in rates. The past two days show us why. When these types of events are moving markets, things can change quickly and significantly. Monday will be no different, as the success or failure of the weekend negotiations with Greece could have a huge impact on markets.
Today's losses bring the average conventional 30yr fixed rate quote back within a range of 4.125-4.25%. The move up from the previous 4.0%-4.125% range was already in progress yesterday, but today's weakness solidifies it. It goes without saying that locking continues to be the only advice for borrowers who don't want to gamble with market volatility. Rates can always improve, (and likely will improve if Greece fails to make a deal this weekend), but the risk of floating over the weekend is greater than the reward.
Loan Originator Perspective
"In today's episode of "As The Greek Bailout Turns", bond markets continued their selloff. We've now lost 100 bps (1%) to loan pricing since Wednesday's close, a rather staggering amount. I've been locking loans early, and will continue to do so. When bond markets are motivated by geopolitical strife, rather than economics, gains can disappear quickly, and the last two days are great examples of that." -Ted Rood, Senior Originator
"What a wild week it has been. Rates began the week heading lower only to reverse course and head higher. This weekend we will once again get big news out of Greece which will make Monday a day you either wish you floated or wish you were locked in. Given how crazy the market has been lately it is better to play it safe and lock in before the end of the day today." -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.125%-4.25%
- FHA/VA - 3.75-4.0
- 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).