Mortgage rates abruptly lower today after the Fed unveiled a third round of large-scale asset purchases known as quantitative easing or QE3. Although the dollar amounts announced today are smaller than QE1 and QE2, the Fed deviated from past easing announcements and opted for open-ended buying this time. Not only that, but the buying is exclusively in Mortgage-Backed-Securities (MBS), unlike previous iterations which have had significant Treasury components.
Logically, this is a bigger benefit for mortgage markets than for Treasury rates, and this has certainly been demonstrated today. Despite Treasury yields barely making it back to yesterday’s levels, Mortgage Rates have fallen significantly, bringing them to their lowest levels in over a month and edging back toward ALL-TIME LOWS. This puts the 30yr Fixed Best-Execution Rate somewhere between 3.5% and 3.375% depending on the lender. It certainly remains much closer to 3.5% today, but lenders can’t react instantaneously to the full amount of movement seen in the underlying MBS market.
(Read More:What is A Best-Execution Mortgage Rate?)
The bottom line is that today had the potential to be a BIG DAY in either direction, and we ended up getting the positive version of that potential. In the past, markets have also reacted positively to similar new, but reversed course shortly thereafter. We don’t have any reason to believe that that will be the case this time, but bring it up as a reminder that today’s triumph doesn’t guarantee tomorrow’s victories.
That having been said, today was a new sort of triumph for the mortgage world. Bernanke paid extra attention to the topic, referring to housing as the piston that hasn’t been firing during the recovery. It’s clear that the entire FOMC agrees or else they wouldn’t single-out mortgage-backed-securities for quantitative easing in the current environment. It means much more now than it did when MBS were fragile and near death compared to Treasuries back in 2008.
Temporary Note On G-Fee Hikes: This is something that’s happened before and is something we know will continue to happen (read more HERE), but it doesn’t make the effects on rate sheets seem like any less of a shock when they arrive. Lenders have been adjusting their pricing policies more quickly in response to this most recent hike and it has generally been enough to push most scenarios up to the next .125% higher in rate. In our view, this is a MUCH bigger consideration than trying to time highly uncertain financial markets. Bottom line, if you can unequivocally confirm that you’re working with a lender who has not yet priced in the Guarantee Fee increase, and that your loan is on a timeline that risks being affected by it, we’d certainly favor locking in those scenarios (not to mention making sure your lender has everything they need to get your loan done without the need for a lock extension, because those are getting much more expensive in some cases if they cause the time frame on the file to cross into the higher Guarantee Fee territory).
Long Term Guidance: While the recently high degree of uncertainty remains very much intact, the Fed’s decision to specifically target Mortgage-Backed-Securities in a third round of Quantitative easing provides a supportive undertone for mortgage rates. We’d still advocate not trying to get too far ahead markets. In other words, we wouldn’t try to guess how low or how high rates might go before changing course. For now, the trend is supportive and positive for rates, but we’re watching it closely for the same sort of paradoxical responses that occurred in 2010. Things look different this time around, but a lot of that has to do with Europe. Rates remain near all time lows and risks of volatility remain high. Those factors suggest that you stay vigilant regarding the day-to-day swings in mortgage rates. If you’re floating, set a limit as to how high rates would have to go before you cut your losses and locked. Similarly, set a target of how low rates would have to get before you lock.
Today’s BEST-EXECUTION Rates
- 30YR FIXED – 3.5%
- FHA/VA – 3.5% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED – 2.875-3.00%
- 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
- Rates could easily move higher or lower, but given the nearness to
all time lows, there’s generally 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
- (As always, please keep in mind that our talk of Best-Execution
always pertains to a completely ideal scenario. There can be all sorts
of reasons that your quoted rate would not be the same as our average
rates, and in those cases, assuming you’re following along on a day to
day basis, simply use the Best-Ex levels we quote as a baseline to track
potential movement in your quoted rate).