Mortgage rates reflect the changes in economic data; this interrelation is a reality that doesn’t change. When the economy is weak, rates go down and vice versa. Nevertheless, in today’s international context, other factors, besides economic development influence the mortgage world. These factors include the weakening of the Euro Zone economy, the geopolitical risks around the world and the perspective for higher easing by the European Central Bank. Under the circumstances, US Treasuries are considered safe assets. At such times, there are fewer benefits seen for mortgage-backed securities (MBS) than Treasuries, although MBS have the most direct impact on rates.
Treasury yields plunged after headlines announced potential US air strikes in Iraq. There was only moderate improvement for MBS when trading began in the morning. Although mortgage rates were stronger in the early hours, they did not move as much as Treasuries. Bond markets redressed in the afternoon after Russia announced a wrapping up of the temporary military operations on the border of Ukraine. Shortly after, some lenders re-priced at higher rates.
Nevertheless, treasuries tend to get a heavier blow than mortgages in a reversed situation. Economists find it challenging to identify a short-term corrective measure vs a long-term trend change. Lower rates are the current trend, but mortgages don’t show it visibly. Borrowers who decide on floating rates should keep an eye open on periodic corrections that will be inevitable if the current long-term trend remains favorable. After such days with a heavy geopolitical charge, the chances for periodical corrections are higher. In other words: much risk and low reward when it comes to floating on your loan.
Given the events and the market evolution, rates are technically at the bottom. Efforts to break lower reversed the course. Locking at the given rates seems like the safest move, as the estimate of lower rates is not encouraging at all.
Mortgage-backed securities have not kept up with the improvement in treasures; therefore loan originators have slightly better prices than the day before. In the light of geopolitical issues some lenders tend to be more conservative with pricing particularly at the closing of the week. Lender pricing will improve if things get worse overseas and the improvement in Treasuries continues. When treasuries sell off at higher yields, mortgage-backed securities will keep their ground despite their under performance these days.
Market improvements come and go rapidly with the changes in the geopolitical context. With a lessening in the Ukrainian, the rate improvements early in the day were gone. Some clients may decide to lock up their gains today while others may decide that floating is their best choice for the moment. And they could be right as long as they understand both rewards and risks.
The Best Execution Rates for Today
- 30-year fixed rate – 4.125-4.25
- FHA/VA – 3.75%
- 15-year fixed rate – 3.375%
- 5-year adjustable rate – 3.0-3.50% – with variations possible from lender to lender
Current considerations for Lock/Float alternatives
- A narrow range in rates has defined 2014 so far. While lots of participants in the market speculate an increase of rates in 2014, the market realities have moved into a paradoxical lower position.
- While the official report of rates was lower year-over-year as of June, these figures are based on the high rates evolution in 2013. For the moment, the 2014 path remains elusive, it’s sideways.
- The US rates remain lower because of European markets keep playing a nagging role in the background.
- The general situation remains shrouded in uncertainty. Marketers and market participants are expecting a break from the current direction but for the moment rates remain very low, despite the late May rally. The May improvement failed to be the expected break that marketers were looking forward to.
For your information, the rates discussed refer to best-execution – they are the most frequently quoted, 30-year fixed rates for top level borrowers. In general terms, the best-execution rates are based on an outright price and on the most profitable option available for the client (how much can you get for your money?). Origination fees and discount points (which have high variability) are not included in the best-execution rates. This rate is usually a prediction of Freddie Mac’s weekly survey (with the mention that Freddie Mac uses a once-a-week polling method for rates)