Mortgage Rates Improve But Remain On Fence Between Recent Offerings

Yesterday marked the first time since late January that Best-Execution Mortgages Rates
stood at 4.0% on average, as opposed to what had been the prevailing average of 3.875%. Rates improved today for most lenders, several of whom once again are offering 3.875% as a “best-execution rate” (learn more about what that means in this previous post with more detailed discussion about Best-Execution calculations).  But a significant portion of the market remains in 4.0% territory.  Best-Execution is very much on a fence between the two rates after today’s improvements.

Apart from the slightly more favorable rate environment, little has changed between yesterday and today.  Since Best-Execution is by no means firmly back to 3.875%, the question remains whether or not this will prove to be a brief foray into
4.0%.  The tone of news surrounding the Greek bailout seems to have shifted in favor of “forays remaining brief” as the skeptics have emerged, calling attention to the unsustainability
of the agreed-to austerity measures, among other things. 

Treasury Auctions–another market event on our radar–haven’t done any additional damage to mortgage rates’ chances of returning to previous levels, but they haven’t significantly helped either.  Still, the absence of a negative is a positive in this context.  For now, bond markets, including MBS (the “mortgage backed securities” that most directly influence mortgage rates) seem to suggest that their default stance is one of strength, and detractors will have to prove their case in order for that to change. 

Tomorrow brings the last of the week’s Treasury auctions.  Simply getting through these auctions without too much damage to MBS is a net positive.  The reason for this is that Treasury Auctions create a need for bond markets to absorb new SUPPLY.  Naturally, higher supply suggests lower prices, all things being equal, and lower prices in bond markets mean higher yields or INTEREST RATES.  Although MBS and mortgage rates aren’t directly affected by these supply considerations for Treasuries, they’re roughly analogous financial instruments that serve a need among fixed-income investors.  If those investors are buying more of one, they’ll generally be able to buy less of the other. 

Despite this oversimplification, this is how new Treasury supply can detract from MBS prices, thus putting some upward pressure on rates.  It goes both ways though…  If the auctions are met with better-than-expected demand, it leads to small shifts in investor sentiment that can ultimately leave bond markets in better territory than they were before the auctions.  To reiterate, today and yesterday’s auction certainly haven’t done any additional damage in this regard, but haven’t helped either.  Even if tomorrow’s auction is similarly uneventful, there can sometimes be a “relief bid” (bid = demand = rates lower) simply due to the conclusion of this week’s auction cycle being over.

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).

…(read more)

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