rates moved moderately higher to end the year, reversing last week's trend of small improvements. In Washington, Fiscal Cliff negotiations have seemingly come to a head with a deal still possible before midnight tonight. That possibility has bond markets more cautious today, and although mortgage-backed-securities have been less damaged than Treasuries in the process, it's been enough to raise borrowing costs on the prevailing Best-Execution rate of 3.375% for conventional 30yr fixed loans. Markets and Mortgage Lenders will be closed for New Years Day tomorrow.
(Read More:What is A Best-Execution Mortgage Rate?)
Whether or not we get some sort of Fiscal Cliff deal by tonight, the fact remains that any attempts to reduce spending and/or increase taxes amounts to "austerity." Opinions and predictions as to how the US economically copes with austerity can justifiably vary, though the consensus is certainly that austerity makes growth more difficult. In that regard, a Fiscal Cliff deal doesn't have a negative connotation for rates in the long term (because it would take stronger and more sustainable improvements in the economy to support higher rates).
But it's important to remember that the short term reactions to major news don't always coincide with their longer term implications. This is why we've advocated a defensive stance with respect to locking/floating over the past few weeks. There's simply more risk that markets undergo a knee-jerk response to fiscal cliff news as opposed to the relatively smaller rewards that could come as a result of no Fiscal Cliff deal by Wednesday.
Loan Originator Perspectives
"In what seems like a similar pattern, rates are slightly worse going into a holiday with markets closed despite MBS prices very similar to last week. I continue to favor floating into the new year. If we get some kind of surprise agreement on fiscal cliff, in my opinion it will only be a minimal deal that only kicks the can down the road. The stock market might temporarily like it, but i feel we will see better rates within the next couple weeks if not sooner. It could be a bumpy ride, so if your risk tolerance is low, go ahead and lock in today...better hurry as many lock desks are shutting down early or leaving it manned with junior staff. Dont be surprised if you see a random reprice worse." -Victor Burek, Open Mortgage.
"Rates subdued today as early market close and fiscal cliff debacle continue to create conservative bias on lock desks. We're still near recent lows, so I'm getting while the getting is good for my clients. Wrote a 15 year at 2.875% with room to pay their costs, life is good for both borrowers and loan officers as 2012 draws to a close!" -Ted Rood, Senior Originator , Wintrust.
Today's Best-Execution Rates
- 30YR FIXED - 3.375%
- FHA/VA - 3.25% (varies more between lenders than conventional 30yr
- 15 YEAR FIXED - 2.875% - 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, but uncertainty surrounding the Fiscal Cliff is applying upward pressure.
- Rates could easily move higher or lower, but given the nearness to
all time lows, there's generally more risk than reward regarding
- 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
- (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).