July 8, 2015
Mortgage rates moved lower at a healthy pace today, ultimately hitting the best levels in just over a month. It was the 4th straight day of improvements and since June 29th, 6 out of 7 days have seen rates fall. With today's gains, most lenders are back to quoting conventional 30yr fixed rates of 4.0% on top tier scenarios. Some had already made that move over the past few days, but 4.125% remained relatively more prevalent until today.
There are some notable exceptions here, with a very large lender or two still not quite down to 4.0%. One final consideration is that recent volatility makes it hard for some lenders to adjust rate sheets as quickly as markets are moving. As such, there is more diversity in rate offerings between lenders. The disparity will continue as long as market volatility continues. In the current landscape, where global uncertainty is is playing a fairly big role in domestic market movement, there's no reason to expect the volatility to subside any time soon.
We've spent a lot of time discussing and watching a big-picture move higher in rates for most of 2015. The past few days have done more than any others to push back against that long term uptrend. It's to a point where we can begin considering a shift in the trend.
There is a tremendously important caveat here. The past few days of positivity have drawn heavily on uncommon global events and risks. It's taken quite a lot of potential turmoil in European and Asian markets to get domestic interest rates to current levels. Investors are forced to guard against the more negative outcomes from these global considerations. If these events prove to be slightly less traumatic than the current level of defensiveness suggests, what had been the best push back against a long term uptrend will quickly become a fast move right back to previous levels.
In plain English now. Bond markets drive mortgage rates and bond traders have built in some cushion against global risks in the form of rates that are slightly lower than they otherwise would be. If the global, risky events don't end up to be as bad as they might be, that cushion would go away, meaning rates would rise, all things being equal. If rates had occasion to be rising for additional reasons, the pace would be doubly swift.
Loan Originator Perspective
"While we've had some nice gains of late on the heels of a smattering of events I would be locking here to protect those gains. I'm not convinced the upward trend we were experiencing has been reversed just yet. But, as they say..... Stay tuned. " -Hugh W. Page, Mortgage Banker, SeacoastBank
"Greece and China continue to dominate headlines and all this talk has been benefiting rates. Even the release of the Fed Minutes showed the Feds are even worried about Greece. We are either in the beginning changes of a trend change away from higher rates or this could be an opportunity to lock in. Your risk tolerance should be the deciding factor." -Manny Gomes, Branch Manager Norcom Mortgage
"Bonds have been able to hold onto the gains following the Greek referendum vote from this past weekend. There are many other factors in play, with the Asian stock market selloff being one of the major ones. It remains very risky to float in this environment. I feel that locking in the gains is the prudent decision at this time. Only those that can afford to be wrong should dare float. We do have our final treasury auction for the week tomorrow. Today's 10 year auction was very well received. If tomorrow's 30 year bond auction goes well, it is possible that we could extend the rally. If you do float, keep in mind that rates rise very quickly and fall very slowly." -Victor Burek, Churchill 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).