Mortgage rates had an awful day today, and they were among the lucky ones. The true pain emanated from Europe, as has been the case so many times in recent years. In that regard, mortgage rates were innocent bystanders. It’s not that mortgage rates are based on European market movements. Rather, the problem is that global markets are interconnected. Major movements in European bonds translate to less major movements in US Treasuries, which in turn translate to movement in the mortgage-backed-securities (MBS) that lenders use to determine mortgage rates.
Today’s key event was a press conference with the head of the European Central Bank (ECB), Mario Draghi. When the ECB began its bond buying campaign, the only indication on timing was that it was guaranteed to last through Sep 2016. Draghi even reiterated this as recently as mid April when he said QE was intended to run through Sep 2016 AND until they see a sustained adjustment in the path of inflation. Today’s problem: that “and” became an “or.” Then, as now, Draghi did his very best to convince markets that the bond buying is guaranteed until Sep 2016, BUT he does everything but actually say it!
Financial markets began having their doubts in April, which was part of the reason rates began to rise initially. Today’s press conference gave him ample opportunity to actually remove the doubt, but his words were quite clearly carefully chosen so as to leave options open. Markets didn’t like that one little bit. Markets want guaranteed money. It makes them calm and it makes rates low.
We’ll undoubtedly talk more about this in the coming days, but the net effect for today is that mortgage rates in the US are now as high as they were last November with the most prevalent top tier conventional 30yr fixed quote going out at 4.125% by the end of the day. That’s a rapid shift from 3.875% last Friday. It goes without saying that the risk the same general lock/float advice remains in effect this spring: risk outweighs reward.
Loan Originator Perspective
“What an ugly day. Lenders issued worse rate sheets this morning and as
the selloff continued they worsened them even more. Pricing is easily a
point worse than yesterday. Floating is highly risky at this point,
but a bit of optimism as the 10 year bounced off support at 2.38 and is
currently at 2.35. With how much we sold off over the last couple days,
i would consider floating overnight. But only float if you can afford
to be wrong.” -Victor Burek, Open Mortgage
“If you are locked, good for you. Rates are currently over 4% and at their highest levels since December. Europe continues to call the shots with German 10yr Bunds leading the way early this morning. I’d like to say the worst is over but I’m not convinced. Not only will further Bund selling hurt our rates but we still have NFP this Friday which is seldom ignored. Best case scenario we get a weak NFP number Friday which leads to bond buying and if we see Bunds follow suit that would be icing on the cake.” –Jason B. Anker, Vice President- Loan Officer at Salem Five
Today’s Best-Execution Rates
- 30YR FIXED – 4.125%
- FHA/VA – 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.
- 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).