January 28, 2013
Mortgage rates moved sharply higher again on Monday, in a continuation of Friday's aggressive weakness (Get Caught Up With Friday's Big Moves). Rates were already well into multi-month highs at the end of last week with today merely making a bad situation worse. If there's any silver lining, it's that the market-based weakness was concentrated in the morning and overnight hours while the rest of the day has been well-contained for the markets that underpin rate movements. Conventional 30yr Fixed Best Execution was between 3.5 and 3.625% on Friday and today clearly moves to favor 3.625%, with a few lenders an eighth higher or lower (What is A Best-Execution Mortgage Rate?).
The week ahead is tremendously busy for financial markets and there's high potential for volatility in MBS, the "Mortgage-Backed-Securities" that most directly influence mortgage rates. The calendar of economic data and events is packed with important information including two of the most important events of any month: Wedneday's FOMC Announcement and Friday's Employment Situation Report.
To have these two pieces of data 2 days apart on a week where bond markets are already moving into multi-month extremes, and surrounded by plenty of other relevant reports, is a complex and volatile recipe for big potential moves. Risks remain that rates go higher before we see a decent day of reprieve. Even then, such days would be assumed to be the exception to the trend until they sufficiently demonstrate their staying power. That can't happen until at least Friday, so we'd continue to be extra defensive until then.
Loan Originator Perspectives
"Our locking bias has come in handy as rates have (temporarily?) soared for the past week. We're way past minor pricing adjustments, seeing rates .25% to. 375% higher than just a week ago. Don't anticipate any huge improvement until we see some bond friendly headlines, hopefully soon!" -Ted Rood, Senior Originator, Wintrust Mortgage.
"Rates are now .375% higher than they were through the end of 2012 as slightly better economic and fiscal outlooks have driven Treasury and mortgage bonds to sell past critical technical thresholds---and rates rise when bond prices drop in selloffs. There's still room for bond prices to drop more and rates to rise more as the wake up call I gave a couple weeks ago is playing out. " -Julian Hebron, Branch Manager, RPM Mortgage.
"Even though the overall downtrend in rates has not been broken. We view this recent uptick as reason enough to lock to prevent further losses for our clients." -Alan Craft, Senior Loan Officer at Acopia Home Loans
"As we have seen before, the upward movements in rates is swift. When and if they fall, it will be painfully slow as always. If you were floating in hopes of 2012 rates, sorry not happening soon. I know I've been trying to make it clear to lock. Some folks did, but some should have and didn't. We can hope for some improvement, but where that will come from is anyone's guess. The lesson here is locking is the right thing to do 99% of the time." -Mike Owens, Partner, Horizon Financial, Inc.
Today's Best-Execution Rates
- 30YR FIXED - 3.625%
- FHA/VA - 3.25% - 3.5% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 2.875%- 3.00%
- 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.
- Prospects For Extending The Debt Ceiling Deadline currently seem to be preventing a move back down in rate. Passage of such legislation could further support a rising rate environment.
- (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).