How many times will we have the opportunity to write this headline in 2012? Yet again, Mortgage Rates
on average, have broken recently set records for 30yr Fixed Best-Execution rates and moved to new all time lows. Best-Execution remains most appropriately at 3.875% although 3.75% is as close as it’s ever been to getting equal recognition. Depending on the scenario in question, lower rates are available and in rare cases, could make sense.
As we note in the rate disclaimer, Best-Ex is the “most efficient combination.” This is akin to the colloquialism “most bang for your buck,” in the sense that we’re looking for the shortest amount of time to recapture any applicable borrowing costs. In some cases, lenders won’t only NOT be charging those costs, but can actually pay a few of the other ones as well. Either way, we look at the difference in cost between each rate.
Until recently, that has been clearly at 3.875% with no threat of competition from lower rates, but they are gradually getting closer and closer, constituting less of a “diminishing return” to take a look at paying more in closing costs in exchange for a lower rate. This is why we say 3.875% is still the best candidate for a Best-Execution rate, but 3.75% is getting close–because the gap in costs between 3.875% and the next few lower rates has not only narrowed, but also become more linear.
Today set records thanks to Europe, both in terms of the broader economic landscape and specific events today. Threats of a French credit rating downgrade by SP flooded the Treasury complex with demand, lower the benchmark rates against which MBS (the “Mortgage-Backed-Securities” that most closely govern mortgage rates) are measured and valued. When Treasuries rally (move lower in yield, higher in price) significantly, MBS tend to be rallying as well, though usually not as significantly. Still, it was enough of a rally for MBS, and consequently mortgage rates, to improve. For those that want to read about it in more detail, here’s how we described the phenomenon on the MBS Commentary.
Today’s BEST-EXECUTION Rates
- 30YR FIXED – 3.875%, 3.75% as close as it’s been
- FHA/VA -3.75%
- 15 YEAR FIXED – 3.375% / 3.25%
- 5 YEAR ARMS – 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates and costs continue to operate near all time best levels
- Current levels have experienced increasing resistance in improving much from here
- There are technical reasons for that as well as fundamental reasons
- Lenders tend to get busier when rates are in this “high 3’s” level
and can throttle their inbound volume by raising rates or costs.
- While we don’t necessarily think rates are destined to go higher,
given the above facts, there seems to be more risk than reward regarding
- But that will always be the case when rates
operate near all-time levels, and as 2011 showed us, it doesn’t always
mean they’re done improving.