May 24, 2013
Mortgage rates finally paused their relentless push higher today, holding at unchanged levels compared to yesterday's latest rate sheets on average. Some lenders were slightly better or worse, but none of them by a wide margin. Data and events were limited and markets were in holiday mode. The most relevant market to mortgage rates, MBS, had a volatile day, but the volatility didn't transfer to rate sheets as much as it normally does, likely due to the shortened trading day and 3-day weekend ahead prompting lenders to price more conservatively yesterday. This would go a long way toward accounting for our observation yesterday that rate sheets were worse in the morning despite trading levels not being appreciably weaker.
(If you missed this week's big news for rates, or want a refresher: Why Did Mortgage Rates Skyrocket Past 2013 Highs on Wednesday?)
While today was less intense than yesterday in terms of unexpected intraday price changes, the unchanged rate sheet levels on average, mean that we're still looking at the highest rates in over a year. Depending on your scenario, that may affect the rate itself or simply the costs associated with that rate. The trade-offs between costs and rate continue to be most efficient (best-execution) at 3.75% though we'd note that the cost factor at 3.75% is higher than the cost factors have been for previous best-execution rates. In other words, there's less money on the secondary side of the market at 3.75, making it harder for lenders to offer no-closing cost or no-origination quotes. It's a good time to weigh the trade-offs of buying your rate down. It may cost more up front, but you and your lender can calculate how long it will take you to break even on the upfront cost based on the monthly payment savings.
Will it turn around? Will it get better? Now that we've seen such a big move up, is it fair to expect some push back in the other direction? Maybe. This is a fairly frequent sentiment on these pages and when it comes to financial markets it will never stop being true: there's never any way to know what will happen tomorrow. What we do know is that there are historically periods of consolidation after moves like the one we've just seen. More often than not, those can afford fleeting opportunities to make up some lost ground, but it's important to consider that, on the times where this isn't the case, the losses tend to be severe. It's a trade off between a decent chance at modest improvement and a smaller chance of more significant deterioration.
Loan Originator Perspectives
"Great day to start the Memorial Day weekend early. MBS prices plunged again (meaning increased rates/costs) as the sell off continued. Let's put this week (and month) behind us and hope for a better June. May has been the worst single month for MBS in memory, good thing we started it with awesome rates. Happy Memorial Day, especially to all active and veteran members of US military." -Ted Rood, Senior Originator, Wintrust Mortgage
"We'd like to hope some kind of rebound will occur in bonds as this jump was fast and furious. To the buyers not under contract and not locked, keep the faith and know that in the last 50 years or so, these rates are still pretty darn good. Have a great long weekend." -Mike Owens, Partner, Horizon Financial Inc.
Today's Best-Execution Rates
- 30YR FIXED - 3.75%
- FHA/VA - 3.25% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 2.875-3.0%
- 5 YEAR ARMS - 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- After rising consistently from all-time lows in September and October 2012, rates challenged the long term trend higher, but failed to sustain a breakout
- EU and domestic economic data remain relevant to mortgage rates, but uncertainty over the Fed's bond-buying plans through the rest of the year is causing volatility
- The further we've progressed into 2013, the faster the swings have become
- Fears about the Fed's bond-buying intentions were proven well-founded on May 22nd when rates rose to 1yr highs after the Fed confirmed their intention to taper bond buying programs sooner vs later
- (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).