February 20, 2014
Mortgage rates continued higher today after it became clear that markets were discounting weak economic data due to weather. In that sense, mortgage rates' are missing their best friend as weak data is typically one of the primary reasons rates move lower. There were other, more complicated factors in play, but ultimately rates were rising in concert with stock prices, which is an uncomplicated relationship that speaks to investors moving money toward "risk."
Lenders did a good job of accounting for the possibility that economic data could have such an effect by pricing conservatively even before the data was released. Unfortunately, that also made for the highest rates since January 23rd. These levels are consistent with a shift back toward 4.5% as the most prevalently quoted 30yr fixed rate, but not in such a dramatic fashion as to preclude 4.375% for the very best borrower scenarios (best-execution). Keep in mind that both rates are technically available in most cases, and the lower of the two simply "costs more" in terms of up-front fees. When adjusted for day to day changes in closing costs, rates rose an equivalent of 0.04% today.
The theme of confusion persists for bond markets (the movement of which ultimately informs mortgage rate movement, chiefly via MBS, or "mortgage-backed-securities"). Investors are struggling to find solid cues for movement in this environment where the notion of "bad weather" can discount negative economic data.
In a more average meteorological year, the type of economic data we've seen so far in February would probably be pushing rates slightly lower. While part of the problem may be the handsome improvements in January (and some natural "push back" against concerted, linear movement), the bigger issue is that the economic data itself is citing the uncommonly cold/snowy weather as justification for the slowdown.
No one knows for sure how big an impact it's having, but until we have a weather-free baseline against which to compare it, confusion could continue. That doesn't unequivocally mean rates move higher--simply that the precious few sources of motivation gain increased importance.
Today, we can see some of the motivation came from broader market movement in that stocks and bond yields moved higher together. It may as well have been a coin toss followed by a team decision to head in the same direction. We're really that light on motivation and in very neutral territory in the bigger picture. That's encouraging because it means the next coin toss could go our way, but also disconcerting in that mere "herd mentality" could just as easily make for bigger movement in the other direction.
Loan Originator Perspectives
"Weak economic data today was shrugged off as weather related, and mortgage pricing worsened. Our current pricing is near Jan 22nd's level, shame to give back a month's worth of gains. Trend not our friend, see no incentive to float unless you enjoy risk fueled adrenaline spurts." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
"Weaker reports would usually help. But not in this market. Because it's winter and the weather has been brutal and until spring no report will be the basis for true economic readings on the health of the economy. That is until the reports can't blame to weather and the reality of a sick economy is believed." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
Today's Best-Execution Rates
- 30YR FIXED - 4.5%
- FHA/VA - 4.25%
- 15 YEAR FIXED - 3.5%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- The prospect of the Fed reducing its asset purchases weighed heavy on interest rates for the 2nd half of 2013, causing volatility and generally pervasive upward movement.
- Tapering ultimately happened on December 18th, 2013. Markets had done so much to come to terms with it ahead of time that it essentially just confirmed the the 6 month move higher in rates, but didn't make for another immediate spike higher.
- Rates moved gradually higher into the end of 2013 and began to move gradually lower into the beginning of 2014, helped along by a weak employment report on January 10th. This report raised doubts as to whether or not the Fed would continue tapering asset purchases at the same pace, but it was ultimately a flare up in emerging markets and weakness in stocks that fueled bond-market positivity and allowed rates to hit 2014 lows on the same afternoon the Fed reduced asset purchases by another $10bln.
- Rates got an ostensible push lower from weakness in stocks and emerging markets. As soon as those moves ran their course, the rate rally bottomed out as well. Now we're tentatively waiting for the next move.
- If anything, there has been some natural rebound against the nice move lower in January. Resistance to that move is low due to the fact that interest rates can't currently rely on weak economic data to help them stay lower (normally it would) because most of the weak economic data is being chalked up to unseasonably cold/snowy weather.
- (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).