January 17, 2013
Mortgage rates shot higher on Thursday matching the quickest pace of the past several months seen at the beginning of January. Although rates didn't make it quite as high in absolute terms, much of the recent recovery was erased. In other words, we're now closer to early January's levels than we are to yesterday's levels. The move was more than sufficient to bump Best-Execution for Conventional 30yr Fixed Loans up to 3.5% from the previous 3.375%. Some borrowers may still have the same rate today vs yesterday, but in those cases, borrowing costs would be significantly higher, in some cases over one half of one percent of the loan balance.
(Read More:What is A Best-Execution Mortgage Rate?)
That's a substantial move for a 24 hour period and it caught markets somewhat off-guard. Even though yesterday caught our attention as being the time in 7 days where rates didn't hold steady or move lower, the actual magnitude of today's weakness in rates markets is at the outer limits of our range of possible outcomes. The surprisingly brisk movements were courtesy of several market events all aligning with the same suggestion.
Rates markets got 3 big doses of bad news in Asian, European, and Domestic Markets. By the time the 3rd installment hit in the form of this morning's stronger-than-expected economic data, rates were already much higher. When momentum builds in financial markets and new data or news comes along that suggests that markets continue moving in the same direction, it can have an unusually large impact. A snowball of weakness had already begun and stronger economic data gave it a push (strong economic data generally suggests higher stock prices and interest rates).
There are two ways to approach this if you're considering locking or floating. On the one hand, this confirms that we've moved away from a calm and stable trend, although yesterday was the better day to play that card. On the other hand, we haven't broken higher past recent rate highs seen in the beginning of the month, nor have US Treasuries surpassed their highs. Risk takers might use those broader boundaries as their signal to lock, while those who can't afford further risk, or who simply don't want to, may want to guard against further short-term weakness. There's still room to view the broader market dynamics as "contained" ahead of the debt-ceiling debate, but if things get a bit worse, that could change. Just be aware that if you opt for the risk-taking route, then our leaning would be toward locking at even higher rates than today's should markets deteriorate to the point that 3.625% Best-Execution is coming into view.
Loan Originator Perspectives
"Vigilance is key in this mortgage environment. A drop in weekly jobless claims and bang uptick in rates(ok, maybe not primarily just due to claims). But you get the point. Although Citi 's Fitzpatrick is calling for a 20% decline in DOW this year. (read here) If that happens, I will bet a nickel to a doughnut mortgage rates decline. Again, vigilance. " -Bob Van Gilder, Finance One Mortgage
"Rates retraced recent highs today on surprising strength in unemployment and housing starts. Hoping the increase will be brief (as last one was a couple of weeks ago). Bottom line is that if you're floating, need to have a clear strategy on how much pricing you're willing to risk in situations like today's. My pipeline is locked, glad we used MND's resources to get best pricing for my customers. Only thing worse than seeing rates rise is seeing them rise when your customers rates are floating! " -Ted Rood, Senior Originator, Wintrust Mortgage.
"Reprices for the worse from all lenders today. Lock before it gets worse. We might see a reversal, but I wouldn't bank on it short term." -Mike Owens, Partner with Horizon Financial, Inc.
Today's Best-Execution Rates
- 30YR FIXED - 3.5%
- 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 have risen moderately from their all-time lows, making for relatively increased reward for floating at the expense of greater risks of loss.
- Rates could easily move higher or lower, and unscheduled, unexpected events can ultimately have the most say in the direction.
- Near term risks in 2013 include the upcoming debt-ceiling debate in Washington as well as the Fed's policy outlook regarding securities purchases.
- (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).