What a frustrating week it has been for anyone trying to make sense of the movements in mortgage rates or those hoping to get ahead of the market in order to secure the lowest possible borrowing costs. Every day so far this week has seen lender rate changes in the middle of the day and through the course of the week, prices of mortgage backed securities (MBS) have bounced wildly back and forth between their highest and lowest levels.
It's been a "pick your poison" kind of scenario as to whether or not you'd prefer to start with high hopes only to have them dashed or spend the better part of the day down in the dumps only to be taunted into cautious optimism as prices creep back into better territory by the close.
Today was the latter scenario, where MBS prices moved frighteningly downward for most of the session, effectively bringing lender mortgage rate quotes to their highest levels of the week, only to stage a moderately sized and exceedingly stable recovery back to the middle of the week's range here in the final hour of trading. Multiple lender reprices were reported. The best conventional/FHA/VA 30 year fixed mortgage rates are in the 4.25% to 4.50% range for well-qualified borrowers. The best conventional/FHA/VA 15 year fixed mortgage rates are in a range between 3.500% and 3.875%.
Important Mortgage Rate Disclaimer: Loan originators will only be able to offer these rates on agency conforming loan amounts to borrowers who are have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recordation + escrows (things like upfront MIP (if required), property taxes, homeowners insurance, accrued interest)"
A chart of the mortgage-backed securities I've been referencing above is helpful, I think, in illustrating the ping pong back and forth that has been occurring this week. Yes, you can see we're ending in the middle of the range, and yes, it is a slight benefit that the range has been narrowing ever so slightly, but counteracting those boons is the fact that this sort of volatility is not conducive to lenders feeling comfortable to the point of being generous with loan pricing.
Keep in mind with respect to the following chart that this MBS coupon is charted in terms of PRICE (inverse of rate/yield) so the higher the green line is, the better it is for rates, and lower = worse. The white vertical line separates off today's action only, so you can see we're going out roughly where we starting but only after a journey to the outer limits of the range.
Bottom line: the name of the game continues to be volatility (NOT NECESSARILY OUTRIGHT WEAKNESS). The factor that allows anyone to hold out a potential upside in all this volatility is the fact that after putting in price lows on November 16th, neither MBS prices, nor US Treasury prices have gone lower since. That suggests, albeit with the utmost timidity, that we are in the process of putting in some sort of base of support from which additional gains can be made next week aka we're near the end of the QEII cleansing process. But sadly, with an equal amount of time this week spent chopping around highs and lows, the same rationale could apply to the highs seen on Monday, and the fact that we've gone no higher since.
In other words, things could get bad just as fast as they could get good. Now is not a time for risk taking in the mortgage market. For technical considerations related to the bond market's short term investment bias, we view the next 7 days as a high risk floating environment, especially when you add in the fact that it is a holiday shortened work week and the Treasury Department will be auctioning debt. We still believe the market is ripe for a reversal but we reiterate the fact that volatility is abundant and logic seems to be M.I.A.