January 30, 2013
Mortgage rates began the day at broadly higher levels, as bond markets moved higher in yield overnight and again after the morning's economic data. Even though this morning's GDP was weaker than expected, bond markets strengthened only briefly before continuing further along yesterday's path of weakness. Typically, weak economic data suggests stronger moves in bond markets, in which MBS (the mortgage-backed-securities that directly affect mortgage rates) operate. Rates were generally weaker than yesterday but in most cases, not quite as bad as Monday's, with several lenders offering small improvements after a palatable Fed Policy Announcement. Best-Execution for 30yr Fixed, Conventional Loans remains at it's newly acquired 3.625% perch with the day's changes being limited to the closing cost side of the equation.
(What is A Best-Execution Mortgage Rate?)
Heading into today, the FOMC Statement was expected to be the biggest market mover with GDP of secondary importance. The opposite turns out to have been the case as the GDP data was an ideal source of volatility, both because its headline numbers disagreed with its internal suggestions and because it arrived at a time of day more prone to market participation independent of scheduled data. In other words, market participants have been trading actively in the mornings purely based on how actively other market participants are trading. More folks are tuned in during early morning hours as European markets are still running and domestic participants haven't made it to their lunch breaks yet.
Increased participation aside, the counterintuitive GDP reaction made for more volatility. The headline GDP numbers showed negative growth, but this was quickly explained away by big swings in defense spending and changes in business Inventories. This put focus back on the other internal components more attuned to organic growth prospects such as consumer spending and business investment, and provided a perfect opportunity for markets to snap back in the opposite direction suggested by the headline.
Bond markets moved into their weakest levels of the week (highest Treasury yields in over 9 months), and mortgage lenders released rates incrementally higher than yesterday. After leveling off, the opportunity remained that we'd see big movement following the Fed statement. When it arrived, however, markets were mostly paralyzed, and rates markets made a tepid, almost obligatory move back to pre-GDP levels. This clearly leaves the focus for the rest of the week on the "other major piece of data,' Friday's Employment Situation Report. Despite the nice little bounce back in the afternoon, we continue to be extremely defensive ahead of Friday's data as a positive number could make the already ugly short-term situation for mortgage rates significantly worse. Conversely, there's relief in store if the data is weak, but planning on such things amounts to flipping a coin.
Loan Originator Perspectives
"Data can take a back seat to momentum, and looks like that's where we're at. Today's GDP release should have been rate friendly, instead it barely made an impact. The Fed statement this PM was met in similar fashion. Near close of market we're unchanged for the day, pretty remarkable for all the data. At some point, I'm hoping the market decides we're oversold, but would be shocked if we revisit recent rate lows for quite some time, if ever." -Ted Rood, Senior Originator, Wintrust Mortgage.
"The rollocoater ride has just begun. Although we have experienced these violent swings in the past, we were typically saved by a shocking event that created panic and flight to safety. Typically we would recommend locking loans closing within 15-30 days, but with the uncertainty of what may come next we have shifted our gears in locking loans closing within 45 days as a precaution. The risk of further losses is high, and it appears Wall Street has determined that all world financial problems are under control....until that sentiment changes, buckle up as it will be a bumpy ride." -Constantine Floropoulos, Quontic Bank.
"About the only thing we can hope for short term to help rates is a NFP report that lays an egg or disappoints big time. Anything on number or above and it's hold on. If you haven't locked I suggest you do now before it's too late." -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).