Monthly Archives: December 2014

Mortgage Rates End Year Near 2014 Lows

Today released the results of its Primary Mortgage Market Survey®, showing that while average fixed mortgage rates move slightly higher this week, the average 30-year fixed-rate mortgage ends the year below four percent.

News Facts

  • 30-year fixed-rate mortgage (FRM) averaged 3.87 percent with an average 0.6 point for the week ending December 31, 2014, up from last week when it averaged 3.83 percent. A year ago at this time, the 30-year FRM averaged 4.53 percent.
  • 15-year FRM this week averaged 3.15 percent with an average 0.6 point, up from last week when it averaged 3.10 percent. A year ago at this time, the 15-year FRM averaged 3.55 percent.
  • 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.01 percent this week with an average 0.5 point, unchanged from last week. A year ago, the 5-year ARM averaged 3.05 percent.
  • 1-year Treasury-indexed ARM averaged 2.40 percent this week with an average 0.4 point, up from last week when it averaged 2.39 percent. At this time last year, the 1-year ARM averaged 2.56 percent.

Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following links for the Regional and National Mortgage Rate Details and Definitions. Borrowers may still pay closing costs which are not included in the survey.

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Mortgage Rates are Actually Higher Today

Mortgage rates moved higher at a much quicker pace today.  This runs counter to the most widely-circulated weekly rate report from Freddie Mac, which indicates a new low for 2014.  The Freddie data isn’t wrong, just a little behind.  Still, it’s important for consumers to understand that today’s rates are no longer the year’s lowest.

This is a fairly common discrepancy between Freddie’s rate survey and reality, and it’s only a problem when markets move sufficiently after their survey results are in.  Considering that usually occurs by Tuesday, you may already be able to guess why such a survey is now outdated.  Simply put, yesterday and today combined for the biggest 2-day move higher in rates since April.  Today’s adjustment was much bigger than yesterday’s, and was completely unavailable to be counted in the survey.

In terms of rate quotes, the most prevalent conforming 30yr fixed rate for top tier borrowers was on the verge of moving down to 3.75% as of Tuesday (so it makes good sense that this week’s Freddie survey was the best of the year), but moved back up to 3.875% yesterday.  While 3.875% is still slightly more prevalent, we’re closer to 4.0% being the runner up at most lenders.  In almost all cases though, the costs associated with 3.875% make it a sweet spot in terms of efficiency.  That could mean it makes sense to pay extra upfront costs to move down to 3.875% if you’re currently being quoted 4 or 4.125.

Mortgage Rates Back to Pre-Taper-Tantrum Levels

Mortgage rates fell decisively today, bringing some lenders back in line with rate sheets seen on May 22nd, 2013.  That’s significant because it was arguably the first day of the ‘Taper Tantrum,’ when markets began pricing in the effects of a reduction in Fed asset purchases.  On a more quantitative note, it was significant because it was one of the most abruptly negative days in modern mortgage rate history–one of several that would be seen in the ensuing months.

Simply put, for more than a full year, borrowers and mortgage professionals would have been thrilled with the chance to go back in time to lock May 22nd, 2013 rates.  In more than a few cases, now they can.

The most prevalently-quoted conforming 30yr fixed rate for top tier borrowers is now in transit between 3.875% and 3.75%.  4.0% is out of the question.  Borrowers who didn’t see their quote drop by an eighth (.125%) in rate, should at least be seeing meaningful reductions in closing costs (or increases in lender credits).

Perhaps the most optimistic thing about being back at these rates is that it occurs in the post-QE era.  While it’s true that the Fed is still reinvesting plenty of dollars into MBS, it’s not as if we’ll be hanging on every Fed speaker’s word, looking for clues as to the future course of asset purchases.  We’re not at risk of the same sort of major shock we saw in May 2013–at least not from our own Fed.

But that doesn’t mean we’re not at risk.  This move lower in rates continues to be “hungry” in that it has been fueled by an impressively big supply of negative global economic developments.  Whenever that pace slackens, we can expect a pull-back in the rate rally.  Between now and then, volatility is elevated.  Higher risk/higher reward–probably not the sort of risk that most will want to take.

Mortgage Rates Make Good on Hints of Resilience

Mortgage rates improved to begin the new week–a welcome development considering last week ended with a strong jobs report and a moderate move higher for rates.  Despite that move, we discussed the fact that there was an inordinate amount of resilience in rates given compared to the weakness such an impressive jobs report would normally suggest, and that resilience suggested some latent positivity.  The takeaway, as stated, was that “rates aren’t feeling predisposed to run higher into the end of 2014 without more motivation.”

That was made apparent today as bond markets quickly recouped ALL of their losses from Friday, resulting in the best mortgage rates since the beginning of last week.  The most prevalently-quoted conforming 30yr fixed rate for top tier borrowers had edged up to 4.0% last week, and while that’s still quite common, it’s sharing much more of the spotlight with 3.875% after today.

This Week Will Set the Tone for Rest of Year

Between the healthy dose of domestic economic data, tradeflow considerations, and European Central Bank Announcement, this week will set the tone for the rest of the year’s interest rate momentum.  But the first order of business will be to assess the extent to which last week’s rally was one of those all-too-common Thanksgiving week snowballs.  More often than not, they’re unwound in the following week, so it will be informative if that’s not the case this time around.

If there’s one really compelling reason to believe that recent resilience and positivity has been more than mere randomness, look no further than European markets.  Europe’s 10yr benchmark rallied the entire month of November and actually hit record lows by the end.  We’ve seen the tango in the chart below time and again where US Treasuries look to be lifting off only to get pulled back to earth by a more compelling move in Europe.

2014-11-30 Bunds

The biggest news of the week for Europe will be the ECB Announcement and press conference on Thursday morning.  The meatiest bits of those events tend to occur after 8:30am eastern time, and can even be in progress after some of the earlier morning rate sheets have printed.  The ongoing point of contention for the ECB concerns direct purchases of sovereign debt.  It’s something that hasn’t happened yet, but is increasingly seen as a possibility.  Chances are low that such a thing would be announced this time around, but markets tend to be willing to react to merely convincing hints.

Even though it reserves the right to be, Europe isn’t the only show in town, and couldn’t possibly be until Thursday.  Between now and then there will be several important economic reports, beginning with today’s ISM Manufacturing Index.  This is often the 2nd biggest market mover of any given month (next to NFP) when it comes to economic data.  And if it doesn’t have much of an impact, we’ll only have to wait until this Friday for NFP itself!

Beyond the data, we’re also interested to see who is trading and why.  Corporate debt issuance continues to cause both positive and negative volatility for Treasuries and that should continue this month.  Last week’s run to recent rate lows could greatly accelerate issuance plans (corporations would like to lock in borrowing costs at low rates).  Beyond that, we need to see if there’s any additional push back against last week’s rally.  If not, that would be a strongly positive comment on the longer-term trend.