Mortgage rates may have been feeling the love yesterday, but that now seems to have been a coincidental blip in the longer-term trend. Rates actually started the day in OK shape. Most lenders were the same or slightly better than yesterday, but the bond markets that underlie rate movements weakened steadily throughout the day. Markets are anxious about next week’s potential agreement between Greece and the EU. Such an agreement would allay some of the concerns about growth and stability in the Eurozone. That’s a good thing in and of itself, but those concerns have also fueled demand for safe-haven debt, which includes US Treasuries and Mortgage-Backed-Securities (MBS). Ebbing demand for MBS translates directly to higher rates.
While we can hope that next weeks meetings in Europe produce news that helps rates recover from their recent weakness, we also have to be prepared for the possibility that the pain continues. If it does, we’d almost immediately be in the unfortunate position of assessing the damage to the long term trend toward lower rates that began in early 2014. While that trend won’t be completely defeated any time soon, it’s been looking less and less healthy in February. The magnitude of February’s weakness has created a situation where there is more risk than reward for floating.
Loan Originator Perspective
“It seems the bond market selloff has run out of steam, that’s the hope
at least. Hope isn’t a good rate lock strategy however. Rates remain
near long term lows so I would feel pretty good about locking at these levels.
Greek debt negotiations and the Ukraine Russia cease fire continue to
have the potential to move markets, I’d keep that in mind as a potential
wild card especially with US markets closed Monday. Using recent lows as a gauge there isn’t a great deal to be gained by floating. If you’re risk adverse, lock now and be happy.” –Jason B. Anker, Vice President- Loan Officer at Salem Five
“Rates were somewhat better today for most of yesterdays afternoon rally
was held in tact when rate sheets came out. EU has better than expected
GDP growth and that took some wind out of the bond market but we were
able to hold the lows from the past few trading sessions and this can be
seen a good indicator we may have bottomed in price meaning rates may
not rise more than they have for now. The Greek decision can and will
change things. If you are risk adverse I would not float your rate into
this Holiday weekend.” –Manny Gomes, Branch Manager Norcom Mortgage
Today’s Best-Execution Rates
- 30YR FIXED – 3.75-3.875
- FHA/VA – 3.25-3.5
- 15 YEAR FIXED – 3.00-3.125
- 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 has been and continues to be Europe.
- European bond yields trended constantly lower in 2014, thus playing a prominent role in keeping US rates lower than they otherwise might be. Many feel that Europe will continue to slide until their central bank engages in US-style quantitative easing. Some see this happening in early 2015. In any event, we’re looking for a turn in Europe, first and foremost, before worrying about the longer-term trend in bond markets being at serious risk of reversing.
- It’s impossible to know when Europe will turn a corner, and even then it’s only the sort of thing we’ll be able to observe in hindsight. That means every head-fake toward higher rates runs the risk of developing into a longer term rise, even if those risks vary greatly in terms of probability. Clients with longer term time horizons and who otherwise don’t mind losing some ground in exchange for the chance at locking even lower rates are the only ones who should float. Clients who must close by a certain date or who can’t afford to lose any ground on rates should generally be locking even though the longer term trend has been in their favor for over a year now.
- 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, 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).