Mortgage Rates Eerily Steady at Historic Lows

By: Matthew Graham •

Despite a busy morning of economic data, Mortgage Rates are essentially unchanged from yesterday's levels, leaving the all-time-low 3.875% Best-Execution 30yr Fixed rate intact.

Before the European debt crisis became the most influential market mover for domestic bond markets, there was a good chance that if a particular trading day contained a glut of scheduled economic data releases, those reports would probably be the primary motivation for the market movements that would ultimately impact mortgage rates.  For instance, if Thursday Jobless Claims reported lower than expected, stocks might rally and bond yields might rise (including the Mortgage-Backed-Securities that most directly influence mortgage rates).  In fact, on any given morning, it was a reasonably safe assumption interest rates would generally rise or fall depending on how economically bullish or bearish the data was, respectively.

 See Rates from Lenders in Your Area

The European debt crisis has completely re-written those rules.  This morning was packed with more scheduled economic reports, and most of the results were more favorable, economically speaking, than economists' forecasts.  And while Treasury yields and stock prices did rise briefly after the first round of data, the lingering specter of demand for safe-haven US Treasuries--made obvious by this week's incredibly strong Treasury auctions--trumped the economic data.  Rates returned quickly back to early morning levels (both Treasuries and the implied mortgage rates from the trading of MBS) and have been trading in a narrower and narrower pattern as the day progressed. 

The result is not an unpleasant one for rate-watchers though...  The completely "flat and boring" trading day leaves rates exactly where they were yesterday: at all-time lows.  Please make sure to read the "important rate disclaimer" at the bottom of the page in considering what "all-time lows" means.  The issue of "buckets" as described in the lock/float considerations below, remains a factor that may prevent rates and/or fees from moving significantly lower in the short term.

Today's BEST-EXECUTION Rates

  • 30YR FIXED -  3.875%
  • FHA/VA - Back firmly to 3.75%
  • 15 YEAR FIXED -  3.375%, Approaching 3.25%
  • 5 YEAR ARMS -  2.625-3.25% depending on the lender

Lock/Float Considerations (unchanged from 12/14/11)

Keep in mind that a huge factor in how low mortgage rates can go is the underlying Mortgage-Backed-Securities market.  A vast majority of loan products offered by lenders end up as part of MBS pools.  Even many of the loans that don't end up as MBS are originated at interest rates and guidelines that would allow them to be pooled into MBS "buckets" later in life. 

Without MBS, rates wouldn't be as low as they are and funding for mortgage loans would not be as plentiful.  The reasons for this are complicated and numerous, but the important concept to understand is that there has to be AN ACTIVE ENOUGH MARKET in a particular mortgage-backed-security in order for lenders to be able to offer rates at levels that coincide with that particular MBS.  Think of these like "buckets." 

For a long time, the 4.0 bucket was the lowest MBS coupon for Conventional 30yr Fixed mortgages.  We spent a good deal of time writing about the gradual shift to 3.5 MBS, the next bucket down, over the past 5 months.  The average interest rate of loans in the 3.5 bucket is around 4%, with a range from 3.75% to 4.25%. 

If lenders are to offer rates below 3.75% that make any sort of sense (lower rates are already technically available, but the closing costs required to buy those rates usually doesn't make much sense from a "break-even" standpoint.  In other words, "cost to buy rate down" > "sum of monthly savings over the period of time you plan to have the loan") it would mean that an entirely new bucket of MBS (3.0's) would have to gain enough of a market share for lenders to safely be able to offer such rates.  This has never happened before, and although it COULD happen in the future, it's not happening now. 

We feel that a pick up in the activity in 3.0 MBS would be the first sign of a potential shift lower in rates from current levels.  Until then, 3.875% and 3.75% at best, are sort of the new "wall" in 30yr Fixed rates.