January 3, 2013
Mortgage rates soared to their highest levels in months today after Minutes from the Fed's most recent policy meeting showed the board to be more divided concerning the continuation of its most recent round of quantitative easing, dubbed QE4. It's not that markets think that The Fed's purchases of MBS (the "mortgage backed securities" that most directly influence mortgage rates) or Treasuries will be stopping any time soon, but however long a particular market participant thought that QE would continue, that time frame was either shortened or called into question after today's data.
That led to major selling pressure in bond markets, including MBS. It's as if MBS got a call from their rich uncle saying "hey there sport... Um, yeah.... about those checks I've been sending you... you know, the ones you count on to subsidize your fast-paced lifestyle? Yeah... just a heads up that I'm not super sure that I'll be able to send those for the whole year... just wanted to let you know because I know you were kinda maybe planning on that being an 'all-year' sorta thing. Well, it's been a good talk! Gotta go!"
30yr Fixed Best-Execution--after having been firmly planted at 3.375%--has risen to 3.5% at several lenders, however, lower rates are still available. They're just going to cost a lot more today than they did yesterday.
(Read More:What is A Best-Execution Mortgage Rate?)
The show's not over either! Tomorrow morning brings the all-important Employment Situation Report. This is always the single most important piece of economic data each month. While we'd recently wondered if its traditional impact would be lessened by the focus on the Fiscal Cliff deal reaction, it's now looking to be just as important as ever considering that employment metrics are a lynchpin for Fed policy changes (and markets clearly showed us today how very interested they are in Fed policy changes).
After feeling like we just dodged a Fiscal Cliff bullet yesterday, today's losses come a serious blindside to anyone who'd floated a rate with more optimism. If tomorrow's jobs data is much stronger than expected, the pain will only continue.
Loan Originator Perspectives
"Fed minutes released early this PM showed considerable uncertainty with Fed members on how long their purchases of mortgage bonds would continue. The market took this news hard, with reprices almost immediately. It's times like this that remind both loan officers and borrowers NOT to take the rate markets for granted, and not to procrastinate on starting or locking loans. Between the fiscal cliff "resolution" and today's news, looks like the time to act on doing a loan is NOW, not in a week or two!" -Ted Rood, Senior Originator, Wintrust Mortgage.
"Things are not going well for mortgage rates this week, but in context is still not that bad. Considering we made it relatively untouched through the "Cliff", this could have been a lot worse. I believe this is a little overdone, and we get back a lot of the losses from the last week as we grind out the debt ceiling fiasco to the last possible moment." -Brett Boyke, Senior Mortgage Banker, Wintrust Mortgage.
"Floating short term is playing with fire. Rates may come back down after the dust settles and reality comes back to the market. The jobs report tomorrow could help that if we get an ugly number. Nothing has really changed from an economic stand point so any run up will correct by Feb. Hopefully. I've locked everything up that I can. Those on the fence oh well." -Mike Owens, Partner with Horizon Financial, Inc..
"Today we experienced unexpected data in the Fed's minutes from the mid-December meeting. "A few" "Some" and "Several" FOMC members voiced concern for how long QE should last. In the end, all but Lacker voted for continued Fed action. Perhaps this means an end to price supports for MBS sooner than later. I suspect, though, that this more of a visceral reaction, combined with positioning pricing in advance of tomorrow's NFP report. Nonetheless, we lost .25 - .5 in pricing, at the same rate. My suggestion is to float out existing loans, given future Congressional fights over the debt ceiling, European Union crisis, labor participation rate, an overbought stock market and more. Of course, loans closing in the shorter term do not have the luxury of a medium term perspective and should consider locking sooner than later." -Matt Hodges, Loan Officer, Presidential Mortgage Group
Today's Best-Execution Rates
- 30YR FIXED - 3.375 - 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 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).