January 2, 2013
Mortgage rates moved to their highest levels since December 19th this morning after Congress passed a last-minute bill softening the blow of the Fiscal Cliff. The legislation has been and may continue to be characterized as some sort of "deal" that averts the impending Cliff. While that's true in the short term, the most obvious "yeah but" is the fact that spending cuts were merely delayed.
Markets reacted as-expected to the presence of a "deal" (in the sense that "something" was better than "nothing'), in that stock prices and bond yields moved higher. This brought mortgage rates along for the ride this morning, but most of the momentum from the market's reaction to the Cliff deal was exhausted in the first few hours of trading.
Stocks corrected and MBS (the "mortgage-backed-securities" most directly linked to mortgage rates) were able to hold remarkably steady, in only moderately weaker territory compared to US Treasuries. Some lenders offered improved rate sheets in the afternoon and on average, Best-Execution for 30yr Fixed, Conventional loans remained at 3.375%, though some scenarios at certain lenders may be an eighth of a point higher today than they were on Monday.
(Read More:What is A Best-Execution Mortgage Rate?)
If today is any indication, rates simply moved to the higher end of their recent range, sharing the territory with December 18-20th as well as late October. While closing costs (or lender credits) have varied over that time, rates themselves have generally moved in a well-contained range of 0.25%. Of course, any time we approach the high end of the range, there's concern as to whether or not we'll break through and set a precedent for higher rates.
While it's too soon to say for sure, the resilience seen in rates markets today has taken a big chunk of risk out of the market. That's not to say that rates couldn't move higher, but with this quasi-deal having passed, and 2012 in the rearview mirror, if rates do happen to move higher, there's less risk of them doing so overnight--at least not because of Fiscal Cliff headlines.
Loan Originator Perspectives
"As i stated on Monday, i expected our Congress to kick the can which they did. Equity investors loved the outcome sparking a world wide rally which did hurt mortgage rates this morning, but very minimally. I still expect rates to rebound and improve. Since rate sheets this morning, MBS have moved higher and reprices for the better are starting to appear. I favor floating all loans overnight." -Victor Burek, Open Mortgage.
"We only saw a minimal rate increase after the fiscal cliff deal today. Looks like a good time to float and see if we can get back to the lows on the heels of fed buying in MBS." -Alan Craft, Loan Officer at Acopia Home Loans.
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, but uncertainty surrounding the Fiscal Cliff is applying upward pressure.
- 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).