It's gonna be a big week for mortgage rates, the bond market, and the entire economy. The economic calendar in the week ahead is busy and there are many events to be discussed. . The schedule includes key manufacturing and construction surveys, consumer confidence and home prices indexes, and concludes with Friday’s Employment Situation Report. Scattered in between we'll get four QEII open market operations, two MBS reinvestment TSY buybacks, and plenty of political debate.
MBS historically gain a little more or lose a little less than their Treasury counterparts during this week, so any stability in the bond market as a whole could be a positive for mortgage rates. But by Friday, we'll be gearing up for a potentially large move in borrowing costs following the release of the Employment Situation Report, which is generally viewed as the single most important piece of economic data released to the market on a monthly basis.
Between now and then, there's one overarching certainty regarding markets: uncertainty. That's the theme of the QE2 cleansing process about which we've made so much mention. It has been a volatile tug of war between bulls and bears, and just when it seems like one has gained the upper hand, the other strikes back. This has resulted in a very bumpy ride for consumers seeking low mortgage rates, and to make matters worse, lenders tend to raise rates faster than they lower them, which has been obvious lately.
The biggest enemy for consumer rates in the day's ahead is not the choppy movements themselves, but rather the UNCERTAINTY about how long we'll be in limbo and which direction we'll go from here. During this time, it makes sense to EXPECT volatile movements in between the recent high and low rates seen this month. As long as uncertainty persists, bond traders are reluctant to move enough of their money down into the MBS coupon levels that would ultimately result in lenders being able to go much below 4.25% rates on 30yr fixed loans. (3.5 coupons. READ MORE).
The best conventional/FHA/VA 30 year fixed mortgage rates remain in range
between 4.250% and 4.50% for well-qualified borrowers. The best
conventional/FHA/VA 15 year fixed mortgage rates are in a range between 3.500%
and 3.875%.Best execution on a 30-year fixed loan for a well-qualified, no LLPA borrower is 4.50%. These consumers could possibly be quoted 4.25% at 1+1 but buydowns aren't worth the extra closing costs. For example, a 4.25% buydown at one of the major lenders costs 1.007 points. On a 250,000 loan that buydown would add $2,517.50 to closing costs (1.007% of the loan amount). The monthly savings when floating down from 4.375% to 4.25% on a 250,000 loan is $18.36. Thus it would take the borrower 137 months to recover the points they paid at closing to float down to 4.25%. That's 11.4 years. That is an expensive buydown! We really need to 3.5s to trade again or 4.25% won't be worth it to borrowers.
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)".
Bottom line: uncertainty has rates on hold, and we may experience quite a bit of volatility in the short term. Holding out for the stability that could afford the markets lower rates could be a longer term game than you have time for. If that's the case, about the best that can be done in the short term is to take advantage of the "dips" in rates before they "rip" back up to recent highs. We expect to see some dips in the day's ahead but respect the increased amount of uncertainty in the marketplace.