Mortgage rates moved lower for second day today, with the combined improvements erasing roughly half of the losses seen on Friday. Several lenders managed to reprice to slightly lower rates late in the day. Those that didn’t would have extra room to improve rates tomorrow morning, all other things being equal. The gains bring a respectable handful of lenders back to 3.875% in terms of the most frequently quoted conventional 30yr fixed rate for top tier scenarios. 4.0% is still slightly more common, but with lower closing costs today vs yesterday.
Once again, there were no major events or headlines for US bond markets. Instead, movement cues have come from European trading and even stock market weakness. Rates in Europe have been falling rapidly as the European Central Bank began its quantitative easing campaign yesterday. There is high level of correlation between core European bond markets and US Treasuries. While Europe certainly moves much more on Euro-specific news/events, Treasuries still get some benefit. Mortgage-Backed-Securities (and thus mortgage rates themselves), similarly, tend to move in concert with Treasuries.
It made sense to be skeptical about a single, relatively mild day of gains following Friday’s heavy losses. But now the gains have been accelerated today. This accomplishes two good things depending on your level of risk tolerance. For those wanting to take risk out of the market, it presents an opportunity to lock with some of the recent damage recovered. For those inclined to float, it creates enough of a cushion between Friday’s rates and current levels to cautiously float. The idea there would be to use Friday’s levels as a “stop-loss”–a line in the sand that, if crossed, would act as a trigger to lock at a loss. To be clear, that would mean missing out on the gains of the past two days if the market moved against you, but it would also mean having an opportunity to capitalize on further gains without risking much beyond what was available 2 days ago.
Loan Originator Perspective
“European QE is definitely benefiting bonds here in the US. Just about
all the losses suffered following the much better than expected payrolls
report on Friday have been recovered so if you have been floating it is
paying off. We have no major economic reports tomorrow, but we do
have a important auction of 10 year notes. If that is well received
like today’s 3 year note auction, i think we might continue to see rates
improve. That said, i continue to favor floating all loans overnight
to allow time for MBS to hold current levels which allows lenders to be
more generous with their pricing. If you plan to lock today, hold off
until as late as possible as a few lenders might pass along improved
pricing.” –Victor Burek, Open Mortgage
“Another day of moderate gains in rate markets today. Rates/pricing
still a little worse than before Friday’s sell off, but it’s encouraging
to see pricing improve. It’s still too early to predict imminent,
dramatic improvements on the way, but at least we’re moving in the right
direction. I’m back to a neutral locking bias….will lock for
security conscious clients, but won’t recommend against an informed
client floating.” –Ted Rood, Senior Originator
“After Fridays brutal sell-off to rack up back to back days like
yesterday and today is tremendous. Those who did not panic late last
week and toughed through may want to heavily consider locking as the
market is overly unpredictable. I think the volatility may lean in our
favor with potential turbulence resurfacing in the Eurozone, but again,
it’s unpredictable. I favor floating loans that have more than 15 days
to close.” –Constantine Floropoulos, Quontic Bank
“Rates improved for the second day in a row following Fridays steep
increase. Treasury yields plunging in Europe along with Greece being
front and center again has created a flight to safety trade. This is
even more evident by the steep loses in the equity market. Times like
this the temptation to float sets in for it is human nature to try and
win back what has been lost. If you do be very careful for things can
change quickly.” –Manny Gomes, Branch Manager Norcom Mortgage
Today’s Best-Execution Rates
- 30YR FIXED – 3.875-4.0
- FHA/VA – 3.5 – 3.75
- 15 YEAR FIXED – 3.25
- 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.
- With European QE having now begun, we’re on high alert for a big picture bounce in European economic data, sentiment, growth, and rates. The more it looks like such a bounce is taking hold, the greater the risk that domestic bond markets and mortgage rates will also experience a big bounce higher. There’s already a possibility that the bounce occurred in February, and we’d need to move back to January levels before ruling that out.
- While there’s no guarantee that the current bounce will prove to be “the big one,” it makes better sense from a risk/reward standpoint to assume it will be until that can be ruled out. That means favoring locking over floating in most scenarios, except when otherwise noted as a tactical opportunity.
- 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).