Mortgage rates moved higher today, returning in line with the same "sharply sideways" levels seen just before the most recent push to 2014 lows last week. Bond markets including MBS (the mortgage-backed-securities that most directly affect rates) unwound some of the exuberant trading that helped May finish out with most of the gains intact. Traders are under certain constraints when it comes to the end of the month and those constraints were helpful for rates last week. With the new month underway, we saw a bit of a push back in the other direction even before this morning's comedy of errors surrounding economic data.
That comedy didn't have everyone laughing as a very important report on Manufacturing was initially showing much weaker results. Weaker economic data usually coincides with lower rates and indeed bond markets improved after the release (bond market improvement connotes higher prices and lower yields/rates). Shortly thereafter, the agency reporting the data announced their calculations were off, and the report was actually much closer to expectations. Bond markets moved into much weaker territory and many lenders reissued rate sheets with negative revisions (read: 'higher rates').
Even after the reprices, today's average rates are right in line with those seen for 5 straight days from the 20th to the 27th of May. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains 4.125%, though fewer lenders are close to 4.0%, with the balance shifting toward 4.25%. Many borrowers will see today's weakness in the form of higher closing costs vs yesterday. Expressed in terms of effective interest rates, the increase equates to 0.04%.
The rest of this week is an important one for mortgage rates and financial markets in general. A lot of the increased movement in May is linked to anticipation that the European Central Bank will announce some form of quantitative easing this Thursday. To whatever extent they deliver (or fail to), rates in the US will react. After that, Friday brings the most important economic report of the month: The Employment Situation. Risks are quickly beginning to outweigh rewards when it comes to locking vs floating, but the bottom line is that things can change drastically in either direction by the end of the week.
Loan Originator Perspective
"Locking makes sense to me to avoid any more losses leading up the jobs
report on Friday. Rates improved last month after a better than
expected jobs report number, but that can’t be counted on this time
around. Still close to the best rates in some time and I see no reason
to watch more of the recent gains evaporate." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
"Rates rose today, which is fairly predictable for the start of NFP week.
Given the trend since last Thursday, we've officially broken our
movement towards lower rates. Lots of data and drama looms this week,
between employment data and ECB announcement. If you're floating, and
getting nervous, check today's pricing with your lender. If you have
nerves of steel and some time before closing, could continue to float
until Thursday, but do so with caution." -Ted Rood, Senior Mortgage Planner, tedroodteam.com
"Beginning what is perhaps the most important week of the year (so far)
for rates I believe a cautious stance is warranted. Take your pick on
the list of items that could derail the recent improvements we’ve
experienced. An important ECB meeting on Thursday followed by the all
important US Jobs Report on Friday along with other pieces of important
and relevant data any of which could cause a quick backup in rates if
the data goes the wrong way. Locking is the prudent choice here." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.125%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- The Fed has stayed the course on their $10bln per meeting reduction in bond buying, though markets have handled it relatively calmly compared to the days of "coming to terms with tapering" in 2013.
- Rates fell significantly in January, leveled-off in February and took choppy steps higher in March. From there, they settled into a flat range mostly consisting of 4.375 and 4.5%, but with occasional forays to 4.25 and 4.625%.
- While the bias had been very slightly toward higher rates, it reversed course in April and rates returned to the lower end of the range by May 1st. As the "weather effects" fall out of the spotlight, market participants are seeing a bit more organic weakness in the economy than they'd expected.
- Earlier in May, the focus looked to be returning to economic data, but that proved short-lived as prospects for European central bank easing overwhelmed some of the incoming data, pushing rates lower while data suggested a move higher.
- As of the third week in May, rates were as low as they've been since June 2013, more than confirming a break below the 2014 range.
- Looking back at recent movement, it's had a disconcertingly small amount to do with 'normal stuff' like economic data and Fed policy. Temporary and unpredictable factors currently account for too much of the movement to make firm bets on rates moving either direction in the short term.
- (As always, please keep in mind that our Best-Execution rate always
pertains to a completely ideal scenario. There are many reasons a
quoted rate may differ from 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).