Mortgage Rates Continue Slow, Steady Improvements

Mortgages Rates continued to improve at a slow and steady pace.  After rising somewhat abruptly into the end of last week and beginning of the current week, rates began to fight back yesterday, but the improvements have been and continue to be relatively minor.  This leaves plenty of lenders still best-priced at 4.0%, but with a few more falling back into 3.875% Best-Execution levels today.  In short, we're on the same fence as yesterday, but in a slightly more comfortable position.

Additional reading: Previous post with more detailed discussion about Best-Execution calculations. 

We spoke yesterday about the end of the week's Treasury auction cycle being a net positive for MBS, the Mortgage-Backed Securities that most directly influence mortgage rates.  This was indeed the case, but bond markets got an extra lift from the auction itself being extremely well received.  This benefits Treasuries more than MBS, but MBS can be thought of as being "along for the ride." 

Why would MBS improve due to a strong Treasury Auction?  Indeed, why would MBS improve any time that Treasuries are improving?  There are different reasons this can occur, but let's look at the most common one.  Most investors determine the VALUE of MBS at least in-part, based on US Treasuries.  When a Treasury auction is well-received, prices go up and yields go down. 

Investors like yield, so when it's falling on Treasuries, MBS might look more attractive by comparison, at least based on valuation models that rely on Treasuries to determine the relative value of MBS.  There is quite a bit more that goes into MBS Valuation, but in a general sense, falling yields in certain Treasuries (particularly 5, 7, and 10 yr maturities), make the market returns in MBS look a bit better buy comparison.  This usually results in MBS yields "following" Treasury yields in a matter of seconds or milliseconds, and lower yields in MBS equate to lower rates for consumers.

The end of this week's auction cycle is a good thing, but we're not done with the risky events of the week just yet.  Tomorrow brings some reasonably important economic data in the morning, Consumer Sentiment and New Home Sales.  These can have some impact on bond markets, especially if they deviate greatly from expectations.  But tomorrow is also the first day that Greece's private sector bond swap efforts.  You don't necessarily need to know what that means (Greece essentially starting the process of getting their private bond-holders to sign off on the 53.5% haircut determined by the Eurogroup.  If private bond-holders don't sign off, they'll essentially be forced into the haircut best we can tell) other than it can cause some volatility for interest rates in either direction.

Today's BEST-EXECUTION Rates

• 30YR FIXED -  4.0% more prevalent.  Some 3.875%'s remain
  
• FHA/VA -3.75%
  
• 15 YEAR FIXED -  3.25%
  
• 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
• Current levels have experienced increasing resistance in improving much from here
• There are technical reasons for that as well as fundamental reasons 
  
• Lenders tend to get busier when rates are in this "high 3's" level and can throttle their inbound volume by raising rates or costs.
• While we don't necessarily think rates are destined to go higher, given the above facts, there seems to be more risk than reward regarding floating
• But that will always be the case when rates operating near historic lows
• (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).