November 29, 2012
Mortgage rates moved slightly higher on Thursday, depending on the lender, and whether or not they released negatively revised rate sheets yesterday. Today, some lenders released positively revised rate sheets in the afternoon as market conditions improved. Overall, the difference from Wednesday's offerings was quite small. Bond markets, including the secondary mortgage market, began the day in line with yesterday's closing levels. After some volatility in the morning surrounding the release of Preliminary 3rd Quarter GDP, MBS (the "mortgage backed securities" that most directly influence mortgage rates) slowly began to improve, but not nearly enough to get rates back to yesterday morning's levels.
All that having been said, by the time you take a few steps back and look at the day-to-day changes in rates over time, we've been incredibly sideways. There are two distinct varieties of "sideways." In one of version, there's a wide enough margin between the highs and the lows to keep things interesting. For instance, if rates could be moving much more on any given day, but if they were returning to the high and low limits of their recent range, they'd still technically be "sideways." The other version, logically, is a NARROW sideways pattern. This is more in line with the recent movement in mortgage rates which have not only held at the same 3.375% Best-Execution level, but have done so with very little change in the associated costs relative to their historical range. In other words, not only has a quoted interest rate been unlikely to change from day to day, but cost of that rate has changed less from day to day as well.
(Read More:What is A Best-Execution Mortgage Rate?)
It might seem slightly counterintuitive, but the "narrow version" of sideways market movement is a bit more worrisome than the wider version. When there's more distance between highs and lows, if markets are consistently bouncing higher off the same lows and lower off the same highs, it does more to firmly establish a trend. It tells us more about what markets are doing. Imagine you're detective and you're tracking the behavior of a suspected criminal. If the suspect repeatedly travels several miles between two locations, you'd probably conclude that those two locations are significant. You might further deduce that the suspect is likely to return to one or both locations, but at the very least, if the suspect went PAST the one of the frequently visited locations--breaking the pattern of behavior--you would know that it was a significant development in the case.
But our current suspect is more or less "not leaving the house." We don't have any short term pattern of behavior established to help us determine where he or she might go next and whether or not that destination is significant. Bottom line, when markets are moving more actively, they're communicating with us about their pattern of behavior. When they're not moving, it's kind of spooky, and without the pattern of behavior, we're forced to either be more sensitive to smaller movements, or to take a step back and simply DECIDE how far is too far.
Taking a step back, we see rates that are reasonably close to their all-time lows. Although we wouldn't HOPE that the US goes off the Fiscal Cliff, we would hope that the silver lining would be a move lower in interest rates. But what we don't have is any sort of past precedent for such things. Instead, there's plenty of uncertainty in the weeks and months to come, and some of the uncertainty lies specifically with the mortgage market and the evolving role of the government in mortgage securitization. This sort of uncertainty isn't the ideal environment for runaway improvements in rates, though they can certainly improve.
On the other side of the coin, any measure of "better-than-expected" progress on the Fiscal Cliff negotiations would very likely create challenges for broader bond markets. There's no telling exactly what the fallout would be for mortgage rates, but we think that potential weakness probably outweighs the potential benefits in the previous scenario. Long story short, risks outweigh rewards in terms of floating, but as always, if you set a limit, beyond which you'll cut your losses and lock, there can be value in waiting for shorter lock periods, if you're close to being able to take advantage of them. But we'd caution: market movements are HIGHLY dependent on the UNSCHEDULED headlines concerning the Fiscal Cliff.
Loan Originator Perspectives
"Political posturing on the edge of the fiscal cliff continues to command investors' attention. Rates have been swinging a bit more than recently as the rhetoric flows. No resolution immediately in sight, and rates will hang in there for the moment. Any day I can write FHA's at 3.25% fixed paying the closing costs is a good day if you ask me!" -Ted Rood, Senior Originator, Wintrust Mortgage.
Today's Best-Execution Rates
- 30YR FIXED -3.375%
- FHA/VA - 3.25% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 2.875% - 2.75%
- 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).