Mortgage Rates fell to new all-time lows today after a weaker-than-expected Employment Situation Report. To some extent, markets were geared up for a slightly more upbeat report due to yesterday’s stronger ADP report on private payrolls. Although the ADP figures don’t always line up with the National employment tally (NFP or “Nonfarm Payrolls:), there’s enough correlation that markets do react to big moves in ADP. That’s what happened yesterday, and as sometimes happens the following day, today’s Employment Situation Report failed to confirm the move in ADP.
To be clear, the onus never was and never will be on NFP to confirm ADP. The latter is just sort a hit and miss potential early cue for the former, but NFP is THE definitive piece of economic data on any given month. We mention the ADP number simply because it made the fairly minimal “miss” in today’s jobs report seem that much weaker.
Weak economic data helps rates for 2 reasons, one of them permanent and one of them temporary. The permanent reason is simply that a stronger economy supports higher rates, so when data indicates a softer labor market, rates tend to fall (all things being equal). The temporary factor is the expectation that the Fed may conduct further quantitative easing if the labor market deteriorates “enough.” No one can say for sure what “enough” looks like, but most agree we’re getting close.
Whether or not Fed easing ultimately proves to stimulate an economic recovery is at moot point. Markets are trading the fact that there will be another big chunk of cash added to the demand side of the equation in bond markets. The extra demand helps bond prices move higher and rates lower.
Whatever the proportion of underlying reasons, that’s exactly what bond markets did today. 10yr yields hit their lowest levels since the beginning of the month and the MBS (“mortgage backed securities”) that most directly affect mortgage rates, hit their best levels EVER. As such, most lenders released their best rate sheets ever, with 3.5% Best-Execution prevalent among the top tier and 3.625% easily obtainable for the best-qualified scenarios.
(Read More:What is A Best-Execution Mortgage Rate?)
Long Term Guidance: We'd continue to advocate against trying to "get ahead" of current market movements due to the high degree of uncertainty. While it's a reasonably safe assumption that European concerns will generally help rates stay lower than they otherwise would be, that "otherwise would be" part is very much a moving target. Best bet is to focus on the fact that rates are at their all time lows, and can change quickly based on events that aren't "scheduled" or able to be forecast. Risk vs reward for floating vs locking looks a bit larger than we'd like, but not out of the question for those who understand the risks and have an exit strategy if things don't go their way.
Loan Originator Perspectives
Ted Rood, Senior Mortgage Consultant, Wintrust Mortgage
US economic news continues to disappoint while rates improve. Hate to take current rates for granted when they are truly at all time lows, but for the moment don't foresee any change soon. Bottom line, if you're eligible for any kind of refinance, better get going, and if you're not sure what your options are, call a lender today and find out!
Alan Craft, Loan Officer at Integrity Home Loan of Central Florida
We are still in full on lock mode. These rates may never be seen again and will not last forever. We could dip a little lower, but the risk of an increase in rates outweighs the small benefit of a small dip.
Victor Burek, Benchmark Mortgage
Today's rate sheets are the best ever! But best rates remain ahead of us. My recommendation is to float all loans over the weekend as lenders have yet to pass along all of today's gains.
Julian Hebron, Branch Manager, Loan Agent, RPM Mortgage
Locking purchase loans immediately as buyers get into contract. Locking refis for borrowers who haven't refinanced in the past 1-2 years. Floating refis for borrowers who have refinanced more recently, because there will still be small blips of slightly lower lows on random trading days for the remainder of 2012. And one final note for borrowers: the rate headlines are mostly wrong (except for MortgageNewsDaily). Here's a piece I wrote yesterday on the fine print most mortgage stories miss.
Today's BEST-EXECUTION Rates
- 30YR FIXED - 3.5% - 3.625%
- FHA/VA -3.5% - 3.75%
- 15 YEAR FIXED - 2.875% - 3.00%
- 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).