Mortgage Rates Drop After Yellen Speech

Mortgage rates moved decisively lower today, following a speech from Fed Chair Janet Yellen.  While she accomplished it in several ways, Yellen’s overarching message was that the Fed is in no hurry to raise rates.  Keep in mind, the Fed Funds Rate is not the same as mortgage rates.  In fact, the two can move in opposite directions at times.  In general though, when the Fed is perceived as providing more accommodation (via low rates or various bond buying programs), it’s good news for all sorts of financial markets, including the market for mortgage-backed-securities (MBS) that ultimately dictate mortgage rates.

In other words, easy Fed policy is a rising tide that lifts most boats.  Stocks and bonds received a big boost, to be sure (MBS are part of the bond market).  In fact, the MBS gains were so steep that most lenders didn’t adjust rates to fully account for the market movement.  This is typical when volatility increases, for better or worse.  If markets are able to hold current levels, rates would continue to drop.  As it stands, the most prevalent conventional 30yr fixed quote on top tier scenarios is now easily back down to 3.75%, with many lenders pushing back into 3.625%.  Just last week, there were quite a few lenders up at 3.875%.  To be fair, there are still some out there today, but that won’t continue to be the case unless bond markets take a sudden turn for the worse tomorrow.

As far as the risk of sudden turns for the worse, this is one of those rare opportunities where the average lender could endure a bit of bond market weakness tomorrow without a significant change in rates.  It’s one of the only situations where floating could be argued to have a better than 1 in 2 chance of paying off.  That said, days like today carry increased risks of movement in the other direction in the near term.  In other words, you might have to wait for volatility to shake out before taking advantage of the next opportunity to lock.

Mortgage Rates Continue Higher

Mortgage rates moved higher again today, casting a bigger shadow on last week’s improvements.  Rates haven’t yet returned to the higher levels seen at the beginning of last week, but they’re quickly closing the gap.  Still, the notion of “higher rates” is relative when most lenders are still quoting the same contract rates today vs yesterday.  It’s only when we look at the upfront costs (or credit, depending on the scenario) that we see a deterioration.  The average lender continues quoting conventional 30yr fixed rates in a range of 3.75-3.875%.

When it comes to the road ahead, yesterday’s weakness alone was enough to call last week’s positive trend into question.  Naturally, today’s weakness only adds to the negative vibes.  To be sure, there is more room for rates to rise without setting off the most serious warning bells regarding the longer term trend, but the momentum is negative enough that it doesn’t make sense to roll the dice without considering the risks.  For those who choose the riskier path, be sure to set stop-loss level (i.e. locking to avoid further losses if rates rise to x.xx%).

Mortgage Rates Highest Since January

Mortgage rates continued higher today, making it back to levels last seen in late January.  Today’s key event was a policy announcement from the European Central Bank (ECB) and the accompanying press conference with its president Mario Draghi.  While the ECB’s announcement exceeded market expectations (rate cuts and bond-buying), Draghi said that additional rate cuts were unlikely.  This is what markets chose to focus on.

Stocks fell and rates moved higher as a result.  Reason being: when a big central bank is providing accommodation to the global economy, it’s essentially pumping money into the financial system.  Both stocks and bonds like that money (it helps stocks rise and rates fall).  If one of the central bank chiefs says that some form of further accommodation is unlikely, it’s tantamount to parents pointing out the limit of their kids’ allowance.  If the kids are as petulant as global financial markets, they might throw a little fit about that.  Today is that simple.

In terms of nuts and bolts for mortgage rates, lenders are now well into quoting 3.75% on conventional 30yr fixed loans, with an increasing number moving up to 3.875% today.  It’s too soon to tell if this little market tantrum will blow over, but that’s at moot point.  It continues to be the case that a defensive strategy (read: favor locking vs floating) makes more sense until we can rule out being in the midst of a big-picture bounce toward higher rates.