Markets had been anxiously awaiting Friday's jobs data and the movement that followed was decisive. Mortgage rates rose to their highest levels in two weeks after the important Employment Situation Report suggested labor market conditions were improving more than forecast. Best-Execution for 30yr fixed, conventional loans is up to 3.375% again for many lenders while some remain at 3.25% and others still, have moved up to 3.5%.
(Read More:What is A Best-Execution Mortgage Rate?)
Interest rates tend to rise when data indicate the economy is growing at a faster-than-expected pace. Today's employment data accomplished this in several ways. The portion of the government's data collection efforts that relies on surveyed households indicated that more respondents found work in September than in August. This is where the 0.3% drop in the unemployment rate comes from (essentially, fewer respondents to the household survey met the criteria to be considered "unemployed").
That's all well and good, but it's not the most important part of the report and the unemployment rate--while more easily understood and discussed in mainstream media--isn't what markets typically a motivator for market movements to the same degree as the report's headline metric: Nonfarm Payrolls, which is derived from a survey of businesses and is regarded as the more reliable metric. Also referred to as NFP, nonfarm payrolls rose almost exactly as much as markets were expecting (+114k vs +113k).
While it's possible that markets were heartened simply by not getting another weaker-than-expected NFP number, the revisions to the past two months were significant, with July increasing by 40k jobs and August by 46k. Taken together with the roughly as-expected headline for September, as well as more upbeat responses from households, the overall picture painted of labor markets marked a major departure from recent weakness. It's not that it points to an economic recovery or even "enough" job creation, simply that it was "less bad."
Unfortunately "less bad" for labor markets is "more bad" for rates, and the evolution of mortgage rates in the coming weeks is in question if broader bond markets continue to weaken. Rather than try to get the best idea of what's most likely to happen, it's better to consider the possibilities and take steps to avoid your least favorite. Rates could continue to rise next week, or could gradually come back down. Compare how you'd feel if you lock today and rates fall next week vs how you'd feel if you float today and rates get higher on Tuesday.
For some, floating into Tuesday is a calculated risk that could pay off, though Octobers that begin with strong employment reports have historically been some of the roughest months for interest rates. That said, there's this massive new feature in play, which is the Fed's recently announced additional purchases of Mortgage-Backed-Securities. This very well COULD serve to limit the same sort of losses that previous Octobers have had, in the event that interest rates in the broader market continue to rise, but the initiative is too new and the market landscape too uncertain to be sure about such things.
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. 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
"The bad news is today is that rates are averaging 3.375%. The great news this year is that today's rates are averaging 3.375%" -Chris Kopec, President, Owl Tree Mortgage Company.
"Complacency can be an insidious thing. Many borrowers and loan officers
alike have bought into the idea that low rates are guaranteed, given
the Fed's MBS purchases. Today's rate sheets tell a different story, as
lenders continue to get defensive. Rates are up more, perhaps more
than they should be. Not a surprise to followers of Mortgage News
Daily, but sure will be to many who are less informed." -Ted Rood, Senior Originator, Bank Star
"Considering I have always been a fan of locking, but have recently
switch to the dark side of floating, it would figure that rates are
worse after the NFP report. The report wasn't even great, but the
headline of 7.8% unemployment sticks out. Even though MBS are doing
relatively well compared to Treasuries, rates are worse. I think
lenders are looking for a reason to bump rates due to the high volumes
and a holiday on Monday. Trying to place catch up and higher rates
will help that. I think next week will improve so I'd float over the
long weekend and be trigger happy next week. ." -Mike Owens, Partner with HorizonFinancial, Inc.
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).