Mortgage rates enjoyed another strong day, falling to the best levels in exactly 2 weeks. Rates were actually set to move higher early this morning, but a much weaker-than-expected reading on Q2 GDP helped drive demand for bonds. Better buying pushes bond prices higher and rates lower. The strength in bond markets gave lenders the peace of mind needed in order to offer even better terms than yesterday. The most prevalent conventional 30yr fixed rate is quickly returning to 3.375% on top tier scenarios.
Next week brings important economic data, including the big jobs report on Friday. The overall tone of that data should help determine whether rates will continue building on the past 2 days of positive momentum. The conservative approach would be to lock in the gains with rates at 2-week lows. The aggressive approach would be to wait until we have clear evidence AGAINST the possibility that a new trend toward lower rates has begun. As of today, there is no such evidence, but it could come at any time.
Mortgage rates fell moderately today, adding a 6th day to a winning streak that began with last week's Brexit news and bringing rates right to the brink of all-time lows. Mortgage rate movement can be measured in large and small chunks. The large chunks would be the changes in the actual interest rates being quoted and the small chunks would be the changes in the points associated with any given rate. "Points" have a historically negative connotation to some, but they're very objective, simply referring to the upfront costs or credit on a rate quote.
For instance, if you were quoted a rate of 3.5% with no origination fee, you might also have the option to get a rate of 3.375% with an origination fee of 0.7% of the loan amount. Moving the other direction, a rate of 3.625% could result in the lender being able to pay 0.7% of your closing costs. For what it's worth, the cost to move up and down in rate isn't always 0.7%, and it can also vary based on which 2 rates you're comparing. In other words, it may not cost much in terms of upfront cost to move down from 3.75% to 3.625% at a certain lender, but it could cost quite a bit more to move to 3.5%.
All of that background sets the stage for an understanding of how rates usually move each day. More often than not, markets don't move enough for the RATE itself to change. Rather, it's the "points" piece of the equation that changes. The past week has been an exception. And the actual "rate" piece of the equation has moved down 0.25% in some cases, bringing some lenders from 3.625% to 3.375%, which is now the most prevalently-quoted conventional 30yr fixed rate on top tier scenarios.
Why is 3.375% important? Simply put, the next time rates move a notch lower, they'll be back to official all-time lows. In fact, 3.375% is the lowest rate that markets were able to maintain for more than a day or two back in 2012.
Mortgage rates didn't move any lower today, but they earned an important distinction nonetheless. As of today, you'd have to go back 3 full years to see rate sheets any lower, on average. May 10th, 2013 was a very bumpy day for rates, and it capped a week that served as the starting point for the 'taper tantrum' (several months of rapidly increasing rates as markets adjusted to the idea that the Fed would be ending its bond buying program). With a range of 3.5 to 3.625%, today's top tier conventional 30yr fixed quotes are right in line with those seen on May 9th.
There was no meaningful inspiration for bond markets today, but it is somewhat reassuring that they've continued to hold ground even as stocks have moved much higher in recent days. While it's never a 1:1 relationship, higher stock prices often accompany a move toward higher rates as investors sell bonds (bond prices and rates have an inverse relationship).
Given that rates are at 3-year lows and that we've had a tough time breaking any lower from here, there's certainly no reason to second guess locking. Conversely, given that we've managed to stay low in spite of some headwinds, risk-takers are justified in floating, but should always set a limit as to how much higher rates could go before they lock at a loss.
Loan Originator Perspective
"I am optimistic that rates could test new lows in the near future, but I still went ahead and lock loans that are closing in May. I think short term, you should take the recent gains, lock in and move on. Longer term closings, those in June or after, I think floating is the way to go. " -Victor Burek, Churchill Mortgage
"Rates hovered near unchanged today, despite large corporate bond offerings and a treasury auction. While "not losing" is a positive, both treasury and MBS prices are well above their 25, 50, and 100 moving day averages. This typically results in a selloff at some point, the only question is when. My May pipeline, and most of June's is locked, borrowers sleeping well at night. Floating may return some additional gains, but borrowers need to realize rates move both ways!" -Ted Rood, Senior Originator
Today's Best-Execution Rates
Ongoing Lock/Float Considerations
by: Matthew Graham Apr 3 2015, 12:07PM
Mortgage rates scored a major victory today at the expense of the labor market. Recent examples of the Employment Situation Report (the big "jobs report," which dwarfs all comers in terms of significance) have been surprisingly strong. That presented major problems for rates in February and March as it ramped up expectations for a Fed rate hike. But those expectations have come crashing down in the past few hours. This report wasn't just moderately weaker, it was the biggest month-over-month drop in well over a year.
The bond markets that underlie mortgage rate movement responded immediately, moving to the best levels in nearly 2 months. As for mortgage rates themselves, lenders offerings actually matched those seen on Feb 3rd, making for official 2 month lows (hey... February is a "month" too. No one said anything about "61 day lows"). Most lenders are now down to 3.625% in terms of the most prevalent conventional 30yr fixed rates for top tier scenarios.
With this data and this market movement, things are just getting interesting in 2015! There's always a risk that rates will move higher, but days like today suggest that such a move is, by no means, a foregone conclusion.
"Non-Farm Payrolls swings and misses big. With today being a shortened trading day, lenders will be quite conservative with their pricing. Float til Monday!" -Victor Burek, Open Mortgage
"Rates improved today as the Non farm pay roll number came in much worse than expected. There were also significant revisions to the downside for January and February. If your lender was open today, locking in these gains is not a bad idea but this trend can continue and may be worth floating. If you locked before today there is no shame in having done so. From a risk/reward stand point it was the right call. Lets hope pricing can improve enough so you may float the rate down!!" -Manny Gomes, Branch Manager Norcom Mortgage
"A weak Jobs Report this morning portends better pricing over the near term. Lenders will not likely pass along much in terms of better pricing today so the beginning of next week has a higher than likely chance of improvement. Floating into next week is certainly okay for longer term locks and likely okay for everyone. However, we know markets can turn quickly and we are still sitting close to potential technical inflection points. So, stay vigilant and in touch with your loan officer." -Hugh W. Page, Mortgage Banker, SeacoastBank
"Today's data is what rate watchers live for. For all those brave enough to float into today, kudos, you live to see the promised land. For those who locked, kudos, you did the right thing before a major report may have crushed your deal. We will not see the vast majority of today's move until next week, where I feel it will begin to truly unravel. The jobs number was not just a miss, it was a massive miss--lmost 50% less than expected with revisions to the previous month indicating even fewer jobs have been created. Although the FED will move on raising rates, this buys us some more time heading into the hot purchase season....add in possible economic problems in the fragile Euro-zone and we may be heading to all time lows this summer. I would wait until Monday before locking, but if the improvements aren't extending, it's a good argument for locking--even longer term deals potentially." -Constantine Floropoulos, Quontic Bank