Mortgages Rates are sharply higher over the past two days, and Conventional 30yr Fixed Best-Execution rates moved up from 3.875% to 4.0% unequivocally. If you are being quoted the same rate today as yesterday, the COST component of the quote will likely be significantly higher (or the amount of closing costs the lender is able to pay, significantly lower).
Additional reading: Previous post with more detailed discussion about Best-Execution calculations.
We spoke yesterday about the esoteric concepts of negative convexity and "extension risk." These concepts are at the heart of today's rate movements, in that they explain why the lower rates that have recently been available were the hardest hit by the last two days of weakness in the bond markets. I'd highly encourage you to read it if you're interested in understanding some of the deeper cause and effect relationships between markets and rates: HERE.
Although things were pretty ugly today, both for bond markets and lender's rate sheets, the 4.0% Best-Execution prevalence is a bit higher than we'd expect given market levels. In other words, rate sheets are more defensive than the trading levels would suggest. This can happen when lenders are guarding against a potential shift in broader interest rate trends.
Such a shift likely wouldn't be confirmed this week, but next week brings the D-Day for Greece's private sector bond swap. Basically, if enough of the private sector holding Greek debt voluntarily signs up to take a loss on that debt, and if the whole affair goes mostly smoothly, it could prove to be a challenge for domestic interest rates as it would support more risk tolerance in markets. More risk = higher rates, in a general sense.
There's also the matter of March's Employment Situation Report. These jobs reports are the most important pieces of economic data that we get each month, and market participants may be looking ahead to this one in particular to help determine whether or not the broader interest rate climate will stay within its recent range of about four months, or decidedly begin to move higher.
Today's BEST-EXECUTION Rates
- 30YR FIXED - 4.0%
- 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
- 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).