Today's Employment Situation Report (ESR) placed a large and forceful shoe-print squarely on the backside of recently higher rates! Granted, we're only speaking in a context of a few days, but to experience definitive improvements in rates on ESR day has historically meant good things for interest rates in the week's that follow.
That doesn't mean rates will necessarily KEEP getting better, but this data definitely served an important purpose in MODERATING THE PACE AT WHICH MARKETS THINK THE ECONOMY IS IMPROVING. As we discussed yesterday, economic prosperity generally coincides with rising interest rates. When economic optimism is overly...optimisitc...it can create undue upward pressure on mortgage rates. See the month of December! This helped confirm a stop in that bleeding!
Plain and Simple: Today was an excellent and necessary victory for folks hoping for stable or falling mortgage rates. But the fight is far from over. Getting by this report only created the opportunity for mortgage rates to move lower, it does not mean mortgage rates will move lower, although the odds definitely improved. Now that volume is returning to financial markets, it won't be long before we start getting hints about the market's intentions to do just that.
What does it all mean for you? Well... if you chose not to or were otherwise unable to lock your rate by today, congratulations, your closing costs are slightly lower. But the best execution 30 year fixed mortgage rate hasn't really moved outside the recent range. 4.75% is still the most aggressive conventional 30 year fixed mortgage rate we're seeing quoted, though 4.875% is still considered "best execution".
4.875% is "Best Execution" for very well-qualified borrowers seeking a conventional 30 year fixed home loan. 4.75% is best execution on FHA/VA 30 year fixed loans. This is as good as it gets but we STILL find ourselves swimming in sea of random rate quotes. The primary mortgage market is STILL very segmented. So in reality, the best execution 30 year fixed mortgage rate is in a range between 4.75% and 5.125% with definite chances of phantom offers (very-well qualified borrowers) as low as 4.625% on FHA (4.75% on Conventional loans) and as high as 5.25%. Phantom = elusive. We keep hearing whispers of these quotes but have yet to see proof of aggressive buydown structures.
And while the "sweet spot" rates remain the same, we began to see a slight shift today that balances that sweet spot more evenly between 4.875 and 4.75. This doesn't mean an actual INTEREST RATE that lies between those two numbers! Rather, it means that the cost to buy your rate down from 5.000 to 4.875% is getting to be very similar to the cost to buy your rate down from 4.875 to 4.750%. And while it might seem strange for us to reference "improving rates" yet still be talking about the same rates as yesterday, it is actually the COSTS of obtaining these rates that has come down, anywhere from 0.25-0.50% of your loan balance. (i.e. $250-500 for every 100,000 financed).
Important Mortgage Rate Disclaimer: "Bext Execution" is the most efficient combination of note rate and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who 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 re