Seven days ago mortgage rates were in a precarious position. Home loan borrowing costs had spiked and the lock/float environment was shifting in an unfavorable direction.

That outlook carried over into this week but never really developed,  instead we got a "sideways shuffle" (to suspenseful music). All new lock/float considerations seemed to be a factor of this week's "high-risk" event: The June Employment Situation Report.  That event came this morning....and it provided guidance.

From the Release:  "Nonfarm payroll employment was essentially unchanged in June (+18,000), and the unemployment rate was little changed at 9.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment in most major private-sector industries changed little over the month. Government employment continued to trend down."

Plain and Simple: It's tough to find positive news in this jobs report. Following payroll gains averaging 215,000 per month from February through April, employment has been essentially flat for the past 2 months. At least we're still adding jobs though, not losing them, albeit at a frustratingly slow pace.  This offers more confirmation that our economic recovery is facing strong headwinds as we cross into the 2nd half of the year, a view that supports our outlook for lower rates by the end of summer. FULL RECAP

In the chart of Consumer Rate Quotes below, sideways mortgage rate behavior followed by an abrupt drop followed by another spell of mostly sideways activity can be seen. This spell of sideways activity took place near the most aggressive rate quotes of the year.  Since setting new lows on June 27th, consumer borrowing costs have risen sharply. That trend may have been put to a stop today....

If the line is moving up, closing costs are rising.  If the line is moving down, costs are getting cheaper.  Costs fell today.




The chart above compares the average origination costs (as a percentage of loan amount) for several available mortgage note rates as quoted by the five major lenders. Each line represents a different 30 year fixed mortgage note rate.  The numbers on the right vertical axis are the origination closing costs, as a percentage of your loan amount, that a borrower would be required to pay in order to close on that note rate. If the note rate graph line is below the 0.00% marker, the consumer may potentially receive closing cost help from their lender in the form of a lender credits. If the note rate line is above the 0.00% marker, the consumer should expect to pay additional points at the closing table to cover permanent buydown costs and origination fees. PLEASE SEE OUR MORTGAGE RATE DISCLAIMER BELOW

CURRENT MARKET*: The "Best Execution" conventional 30-year fixed mortgage rate is 4.625%. While this has been the case all week, few lenders were readily quoting it.  More lenders were instead offering 4.75% (extra margin in rate sheets). But with today's loan pricing improvements, a greater number of lenders are quoting 4.625%.  On FHA/VA 30 year fixed "Best Execution"  is 4.375%.   15 year fixed conventional loans are best priced at 3.875%. Five year ARMs are still best priced at 3.25% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

OUR GUIDANCE LAST FRIDAY:  The path of least resistance is still up for interest rates, at least in the short-term. That puts us in a defensive posture for at least the next 10 to 20 days and creates an uncomfortable lock/float environment. Rate watchers have two choices: 1) lock up and get out now or 2) try to capitalize on a correction.  The former is the safe advice.  With respect to the latter, there will be ups and downs no matter which direction rates are trending.  And in the current environment, those swings can be BIG, as illustrated in the chart above. For the thrill-seekers out there, or the longer-term, more flexible scenarios, we haven't change our outlook for lower rates by the end of the summer.

CURRENT GUIDANCE: We have good news and bad news. The bad news is, the U.S. labor market isn't producing jobs quick enough to boost the broader economic recovery. This weighs on housing, especially the purchase market and home prices (possible downward spiral).  The good news is, a slow economic recovery supports our outlook for lower interest rates by the end of the summer  (if they could only spark a little more loan demand!). Still, while the case for our long-term outlook remains intact, until we see investors display a commitment to rally, we will be reluctant to advise floating in the short-term, especially with unfriendly volatility only a few days behind us.  We would be willing to float into Monday though, just to give today's poor jobs report a chance to settle in.

BEWARE: This guidance is speculative in nature. We don't have a crystal ball, we can't predict the future, we can only share our outlook. Making the following considerations extra important........................

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

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"Best Execution" is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.

*Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process.