Mortgage rates moved higher for the third straight day on Wednesday as markets gear up for important data and events on Thursday. Interest rates in the broader bond markets moved higher overnight on various headlines out of Europe and the pressure on rates continued into the domestic session thanks to a better-than-expected Housing Starts report. Best-Execution has already moved up to 3.375% easily and for some lenders, is pushing 3.5%.
Even though bond markets clearly reacted to Housing Starts data, the sharp movement still fell within the broader pattern of movement stretching months into the past. That long term picture is a bit distorted for mortgage rates as the Fed's QE3 program has helped mortgages to hold their ground much better than US Treasuries. As for Treasuries themselves, the longer term trend has been steadily higher since hitting all-time lows, albeit with fairly big peaks and troughs.
Partly due to informed speculation and partly due to it being in the future, it seems like trading activity and volatility is ramping up in anticipation of tomorrow's EU Summit. As we noted yesterday, EU officials meet semi-annually to discuss the European debt crisis and the meetings--or "summits" as they're called--can generate a lot of hype. Some of the hype is heard and traded BEFORE the summit itself (this is common, actually), and some of the hype contributes to additional volatility after the fact.
It's that latter case that we want to guard against from a mortgage rate perspective. Assuming that bond markets are weakening in part due to anticipation for progress at the EU Summit, the last thing a mortgage rate watcher wants to see is for the Summit to churn out actual headlines that continue the trend higher in rates. This is a real risk, and no amount of Fed buying will keep mortgage rates low if broader bond markets get caught up in that sort of "Europe is fixed!" hype. You can choose to adopt the "believe it when you see it" attitude as far as Europe being fixed, and that attitude would have served you well for many many months now (provided you had sufficient time to wait out the ups and downs), but locking at a loss today would prevent you from having to find out if that continues to be the case.
Long Term Guidance: While the recently high degree of uncertainty remains very much intact, the Fed's decision to specifically target Mortgage-Backed-Securities in a third round of Quantitative easing provides a supportive undertone for mortgage rates. We'd still advocate not trying to get too far ahead markets. In other words, we wouldn't try to guess how low or how high rates might go before changing course. Rates remain near all time lows and risks of volatility remain high. Those factors suggest that you stay vigilant regarding the day-to-day swings in mortgage rates. If you're floating, set a limit as to how high rates would have to go before you cut your losses and locked. Similarly, set a target of how low rates would have to get before you lock.
Loan Originator Perspectives
"It's always interesting to see the mind set of customers refinancing. Most of my clients want to lock initially, given adequate pricing, while others seem to think rates will continue to drop regardless of market trends and world events. My bias has been locking for some time, clients who have followed that advice are happy they did so. Those that floated will have to decide at some point to either take the rates available or stay at their current 4, 5, or 6%. Whether we hit the rate bottom or not, certainly doesn't make sense to stay at a ridiculous rate a day longer than necessary! " -Ted Rood, Senior Originator, Bank Star.
"Lock while you can. It's possible to get ugly and floating is dangerous in these shark infested waters. " -Mike Owens, Partner with Horizon Financial, Inc.
"Application volume is still heavy despite the recent sell off in rates.
Right now we find our consumers are "timid" to lock as they are so used
to rates falling. They have seen 3.25-3.375% getting floated
around...but after they get their info in, rates are slightly higher.
However, they MUST comprehend that rates do not always fall. When they
go up...they do so relatively fast! At this point, I think you have more
to LOSE than you do to GAIN by holding out. You will kick yourself if
you miss these rates AND you will be excited if they go down and get to
do another no cost loan! Looks like a win/win. Most loans we are seeing
are going out at 3.5% with no costs. Don't be greedy.....take your chips
off the table and lock it. " -Tim Elkins, CEO, Crossline Capital
Today's Best-Execution Rates
- 30YR FIXED - 3.375%
- FHA/VA - 3.25% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 2.75% - 2.875%
- 5 YEAR ARMS - 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates and costs continue to operate near all time best levels
- Rates could easily move higher or lower, but given the nearness to all time lows, there's generally more risk than reward regarding floating
- This will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn't always mean they're done improving.
- (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).