Mortgage rates rose to their highest levels of the week on Thursday as bond markets moved into a defensive position ahead of Friday's major employment data. Although there were several pieces of economic data today, it was this defensive positioning that accounted for most of the rise in rates. Many lenders recalled initial rate sheets for mid-day price increases as bond markets sold off. Best-Execution levels are getting a bit sloppy here with most lenders still at 3.25%, some creeping up into 3.375% territory and an aggressive few at 3.125%.
(Read More:What is A Best-Execution Mortgage Rate?)
This week's focus has been on the uneventful market movements and the tame movement in rates contrasted against the looming risks associated with Friday's Employment Situation Report. This is the most significant piece of economic data in any given month, and furthermore, is an important accompaniment to the Fed's recent decision to buy more Mortgage-Backed-Securities. Basically, if job creation isn't "high enough," then the Fed will continue buying mortgages on the secondary market, which has helped rates to their all-time lows.
One positive employment report certainly won't be enough to affect the Fed's current buying plans, but mortgage rates still aren't completely insulated from the ups and downs they'd normally experience. In the current environment, those ups and downs are a bit less "peaky" due to the Fed's involvement, but if the jobs report shows better-than-expected job creation, rates could get even worse tomorrow. We'd also note that even the earliest rate sheets available tomorrow WILL NOT be available until AFTER the employment data. So it's either time to decide on locking vs. floating now, or rolling the dice for tomorrow.
Long Term Guidance: While the recently high degree of uncertainty remains very much intact, the Fed's decision to specifically target Mortgage-Backed-Securities in a third round of Quantitative easing provides a supportive undertone for mortgage rates. We'd still advocate not trying to get too far ahead markets. In other words, we wouldn't try to guess how low or how high rates might go before changing course. For now, the trend is supportive and positive for rates, but we're watching it closely for the same sort of paradoxical responses that occurred in 2010. Things look different this time around, but a lot of that has to do with Europe. Rates remain near all time lows and risks of volatility remain high. Those factors suggest that you stay vigilant regarding the day-to-day swings in mortgage rates. If you're floating, set a limit as to how high rates would have to go before you cut your losses and locked. Similarly, set a target of how low rates would have to get before you lock.
Loan Originator Perspectives
"Rates up are up again slightly today as the key MBS coupons are trading
lower. Lenders hike rates when MBS prices drop like this. Like
yesterday, it's this is a small change but together, the two days mean
will see higher rate quotes. It doesn't help that backward-looking
Freddie Mac rate data was published today and all media headlines suggest
rates are lower. " -Julian Hebron, Branch Manager, Loan Agent, RPM Mortgage.
"Rates weaker today as tomorrow's NFP report looms. We're still within
well established trading ranges, nothing earth shattering going on, but
for floating borrowers with limited risk for tolerance, may be time to
take the current great pricing.....80% of something sure beats 100% of
nothing in my book." -Ted Rood, Senior Originator, Bank Star
"Pricing is slightly worse today than yesterday. I'm still thinking a
NFP report surprise to the upside is unlikely. I can't see a big spike
in hiring before the election. Floating until tomorrow is risky, but
makes sense to me." -Mike Owens, Partner with HorizonFinancial, Inc.
"Floating into NFP always poses a risk vs reward that must be calculated
with extreme caution. Whether managing a pipeline of $100MM or managing
your own personal transaction, it bears the same consideration. We
typically have held a conservative approach at these levels with the
understanding that rates are so low and spreads are healthy enough that
the risk vs reward doesn't constitute floating into NFP. We have the
same position going into tomorrow's job report, with an added risk due
to the importance of this report for the election. Consensus- anything
closing within 2-3 weeks should be locked, longer term deadlines have
added time value to speculate only if necessary." -Constantine Floropoulos, Quontic Bank
Today's Best-Execution Rates
- 30YR FIXED - 3.25%
- FHA/VA - 3.25% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 2.75%
- 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
- Rates could easily move higher or lower, but given the nearness to all time lows, there's generally more risk than reward regarding floating
- This 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).