Market Commentary from Mortgage Daily
Bay Area mortgage rates in the SF and surrounding areas continue to operate at their best levels since early February following Friday’s weaker-than-expected Employment Situation report. There was effectively no change in most lenders’ rate sheet offerings versus Friday morning’s rates. Even last week, there were no dramatic movements into the Employment Report, but more of a steady march toward historical lows.
This naturally leaves the 30yr Fixed Conventional Best-Execution Rate unchanged at 3.875%.
With the Jobs Report behind us, there’s less by way of big-ticket “risky events” in the near future. Economic data in the current week is limited although Treasury coupon auctions (3, 10, and 30yr maturities) will take place on Tuesday, Wednesday, and Thursday respectively. Another consideration is the market’s ongoing reaction to current political events in Europe. Euro-zone surprises can indeed have an effect on domestic rates, but we continue to see rates having a hard time getting lower from current levels.
“Floating into the auctions, and any potential Eurozone news only creates more risk than reward with rates as low as they are” says Constantine Floropoulos, VP and Sr. Loan Officer at Quontic Bank. “We’ll need liquidity in lower coupon MBS if we’re going to see a drop in Best-Execution rates… Not an overnight process.”
There’s a hidden “wall” in mortgage rates created by the underlying mechanics of the MBS Market (MBS are the “mortgage-backed securities” that most directly influence rates). As Mr. Floropolous alludes to, the next coupon lower from current levels is not very active. Think of this like a bucket that folks are generally hesitant to place their water in. (Read more on “buckets” HERE).
In order for this relatively empty bucket to get more water, markets would have to languish at current levels, fueled by a steady stream of negative economic data. Andy Pada, VP at 1st 2nd Mortgage, notes “Waiting for a parade of economic horribles to occur is neither good for the soul nor is it a guarantee for a lower rate. Lock in your historically low interest rate, assess any available lender credit and be content with having executed your mortgage transaction at this time in history.”
Long story short, it will take more time and more stability at low rates before the underpinnings of the MBS market can adapt to make room for those frontier buckets. Until then, further gains are minimal and hard-fought. For Loan Officers like Mike Owens, at HorizonFinancial, Inc, the decision is easy: “I always lock the rate. As usual I’m not a risk taker and with rates at historical lows, there is just not much incentive to float. We can float down in rate with some investors as well so that’s another reason to lock.”
Today’s BEST-EXECUTION Rates
- 30YR FIXED – 3.875%
- FHA/VA -3.75%
- 15 YEAR FIXED – 3.125-3.25%
- 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
- Rates could easily move higher or lower, but given the nearness to all time lows, there’s generally more risk than reward regarding floating
- But that will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn’t always mean they’re done improving.
- (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).