Mortgage Rates Microscopically Lower

Mortgage rates barely budged today.  Those that budged moved almost imperceptibly lower from yesterday's latest rate sheets.  In general, there was simply very little movement in underlying markets and lenders' rate sheets matched the tone.  

Ironically, Freddie Mac's weekly rate survey results came out this morning indicating higher rates.  Keep in mind that the Freddie survey receives most of it's responses early in the week and then reports on Thursday mornings.  That means that any changes in rates over the intervening days are not captured in the data.  In the current case, it's not that rates have moved significantly lower in the past few days, but more to do with the fact that last week's Freddie survey didn't capture the brunt of the rise in rates that occurred on Tuesday. 

Think about it this way: a survey respondent sits down to work Monday morning and sees their email from Freddie.  They may or may not have even had time to take Monday morning's rate changes into account, let alone those occurring in the following 3 days.  Bottom line, Freddie's figures were clearly a bit too low to accurately capture last week's pain.  By the time this week's survey came around, rates had already done a fair amount to recover, leaving only a moderate increase in the official numbers (3.84 to 3.87). The real increase at the beginning of last week would have taken the Freddie number instead into the 3.9's. 

In talking about these survey results, it's important to remember that most lenders offer mortgage rates in .125% increments (.00, .125., .25, .375, .5, .625, .75, .875).  When the rate falls between those levels, it has to do with averaging and closing costs.  In other words, the interest rate on the mortgage note isn't the only component of the cost of the mortgage.  For instance, one borrower might choose a rate of 4.0% with no closing costs while another borrower might choose 3.75% with 1.5 points upfront.  Survey averages account for these differences, and in Freddies' case, some even list an associated upfront "points" value.

Loan Originator Perspective

"Floating paid off modestly again today as lender rate sheets have continued to improve. The benchmark 10 year note continues to hold near 2.14, but has been bouncing above and below it. Tomorrow we do get the revised first quarter GDP and economists are expecting a revision lower from 0.2% to -0.8%. I feel the negative reading will continue to help bonds improve. So, if you can afford to be wrong, i would again float over night, but be prepared to lock early in case the market turns toward the end of the day." -Victor Burek, Open Mortgage

"It was another day of treading water in rate markets Thursday. My rate sheets were virtually identical to yesterday's, and both MBS and treasury bonds barely budged in price. The stability sure beats early May, when we'd get 3 or more sets of rates daily. I don't know where rates will eventually go, but buyers could sure do worse than locking at our current levels." -Ted Rood, Senior Originator

"Mortgage bonds have been having a difficult time breaking convincingly higher (implies lower rates). If they are not able to move higher the path of least resistance will be lower which will cause rates to move up. At the moment we are in wait and see mode. If you are happy with your rate go ahead and lock if you can stomach to wait a few more days before making that decision floating does make sense." -Manny Gomes, Branch Manager Norcom Mortgage

"If we don’t see rates move convincingly lower tomorrow, we will have spent the entire month of May locked in this new, higher range.  In terms of 10yr Treasury yields, the key level is somewhere just over 2.10.  This has been an important zone in recent years and we approached it several times in May only to bounce back into the current range.  That has me feeling defensive, and for now the closer we are to   the low end of the current 30 day range, the more I feel like locking.  Any break below 2.1 if sustained would be great news for mortgage rates but I for one am not counting on that happening." -Jason B. Anker, Vice President- Loan Officer at Salem Five

Today's Best-Execution Rates

• 30YR FIXED - 4.00%
  
• FHA/VA - 3.75
  
• 15 YEAR FIXED - 3.125-3.25
  
• 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.  On the one hand, some believe we're in the midst of a race among world central banks to devalue currencies and lower interest rates.  Others believe that the global economy is turning a corner and rates will grind higher.  That had been creating a lot of volatility, which made for uncertain fluctuations from day to day.  But those periods of volatility have been interspersed by utter indecision where rates are effectively drifting sideways with no conviction and no desire to get off the fence.
  

• With European QE having now begun, we're on high alert for a big picture bounce in European economic data, sentiment, growth, and rates.  The more it looks like such a bounce is taking hold, the greater the risk that domestic bond markets and mortgage rates will also experience a big bounce higher.   Those risks are being compounded by speculation about the Federal Reserve raising rates by the end of 2015.
  
  
• We're in the middle of the 2nd big, ugly bounce so far this year and once again forced to confront 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.  That said, the upward momentum in rates during this move has subsided to such an extent that we can say markets are considering their next move. 
  
  
• 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).