November 5, 2012
While some of the improvement came in the form of late day reprices on Friday, mortgage rates are appreciably lower to begin the week. Movement varied this morning with some lenders holding fairly steady while others improved at much quicker paces. Regardless of the stratification, the net effect is a Conventional 30yr Fixed Best-Execution rate that is firmly at 3.375%. The closing costs associated with 3.375% are the lowest they've been since mid October for most lenders. (Read More:What is a Best-Execution Mortgage Rate?).
Friday's Employment Report garnered a paradoxical reaction in markets. Typically, a stronger-than-expected level of job creation leads to strength in stocks and rising rates in Fixed-Income securities like Treasuries and MBS (the "mortgage-backed-securities" that most directly influence mortgage rates). But we saw the opposite this time around with stocks ultimately selling off and interest rates falling.
One way to account for that phenomenon is to suggest that the stronger jobs numbers did something to increase the likelihood that Obama would stay in office. If we had to guess, it seems that more talking heads think a Romney victory would be economically bullish. There's no way to know if that would turn out to be the case, but if market participants THOUGHT it would turn out to be the case, it could make sense that stocks and interest rates would decline on Friday despite the stronger jobs numbers.
Whatever the case, we'll know a lot more tomorrow (and even more on Wednesday morning). Tomorrow is election day and if there's a discernible reaction in markets, it will go a long way toward confirming or rejecting the theory laid out above (not our theory, for what it's worth, but the one we chose to talk about today). Beyond the election, European drama is potentially increasing again with a good amount of headlines set to hit later in the week.
Loan Originator Perspectives
"Lenders passed along some love this morning but rate sheets dont reflect the recent gains in my opinion. The consensus has been if Obama wins re-election rates should hold to move lower. If Romney wins, rates should hold to move higher. That said, i would definitely lock if you feel Romney wins tomorrow. If you feel Obama wins, i would float. If you are unsure, i would lock as today's rates are as good as they have been in quite some time." -Victor Burek, Benchmark Mortgage.
"Looks like it's "risk off" in the capital markets today. Rates improved considerably, and clients who floated may want to consider taking advantage of that. Fundamentals haven't changed: European situation isn't curing itself and US economy is tepid as fiscal cliff looms. Doing a lot of loans for folks who thought 4.25% was a lifetime best rate. Still can't believe these rates, but at least they're one way to profit in this economy!" -Ted Rood, Senior Originator, Wintrust Mortgage.
"We work with clients to set rate targets they won't go above, pre-approve them, then lock the rates when MBS markets rally and rates dip. Today some clients are hitting their rate targets and we're locking those rates accordingly. These are the first such opportunities we've seen since rates spiked a few weeks ago. The key to this approach is to set the rate target AND to fully pre-approve the loan. Locking blindly when rates dip, then figuring out the loan after almost always leads to problems (with a loan approval factor that wasn't pre-screened, or with a rate lock expiring before the loan closes)." Julian Hebron, Branch Manager, Loan Agent, RPM 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).