July 6, 2015
Mortgage rates moved lower with more conviction to begin the week as global markets reacted to weekend events in Europe. Specifically, Greece voted to reject a set of reforms drafted by its Eurozone creditors. If you're wondering what in the world that has to do with mortgage rates, you're not alone. The easiest way to think about it would be to consider that more disagreement between Greece and the rest of Europe creates more uncertainty for investors. In turn, that uncertainty promotes the buying of safe-haven assets like bonds--especially when those bonds are not at ground zero. As such, US Treasuries and mortgage-backed-securities were met with a glut of demand this morning. Higher demand means higher bond prices and lower rates.
Today's improvements bring rates back in line with levels not seen since the week ending June 19th, though most lenders were still better-priced on June 19th itself. Then, as now, several of the more aggressive lenders are back to quoting conventional 30yr fixed rates of 4.0% on top tier scenarios, though 4.125% remains more prevalent overall.
We've seen European events come and go over the past few years when it comes to the biggest market moving considerations. While there are certainly much bigger, longer-term considerations than Greece, it will continue to have an effect in the short term.
Loan Originator Perspective
"Rates dropped slightly amid Greece's turmoil today, and many lenders repriced better this afternoon. We're testing the bottom of our short term rate range, which is great, but have a ways to go before I'll be sold on this rally. Basing lock strategy on international events is always risky. I'm not saying markets won't continue to improve, just that it shouldn't be taken for granted. I'll assess each borrower's situation and risk tolerance, but see nothing wrong with locking for loans within 30 days of closing." -Ted Rood, Senior Originator
"Mortgage bonds had a seesaw session today as traders try to figure out exactly how much risk the Greek situation contains following the NO vote this Sunday. I believe the market believes a resolution is around the corner. Should talks completely fall apart we could see bonds rally. Now keep in mind I have thought the same thing the last few times talks have fallen apart but following this Sundays NO vote things have certainly changed and people appear to be finally waking up and realizing a Grexit may actually be possible. Locking today's gains is not a bad idea but for those who can can handle risk floating may pay off." -Manny Gomes, Branch Manager Norcom Mortgage
"The Greek no vote this weekend has sent stocks around the world lower and bonds higher. It is the classic flight to safety trade as a lot of uncertainty has entered the markets. The US economy though keeps chugging along and Fed is still on target to raise rates later this year. Floating still remains quite risky, but I like floating here. Lenders have not passed along all the improvements and it is very unlikely we get any kind of resolution to the Greek drama tonight. If you wish to lock today, definitely hold off until later to allow lenders time to reprice for the better." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.0%-4.125%
- 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).