October 22, 2013
Mortgage rates fell abruptly today, after the long-awaited Employment Situation Report painted a bleaker-than-expected picture for labor markets. The report was originally scheduled for October 4th, but was delayed due to the shutdown. Conforming 30yr Fixed rates (best-execution) moved down to 4.125% for many borrowers depending on the scenario, though some lenders remain at 4.25%.
To say that financial markets had been eagerly anticipating the release of this data is an understatement. Apart from a brief spat of volatility leading into and away from the debt ceiling deal, the absence of this jobs report has been the driving force for rates markets--acting to prevent any convicted movement in either direction.
As those barriers were lowered today, and as the report spoke to ongoing labor market weakness, bond markets improved significantly, including MBS, the "mortgage-backed-securities" that most directly influence rate sheets. When MBS prices improve, rates fall--all things being equal.
Weak economic data historically pushes rates lower and today is no exception, but that's not the whole story. The ancillary effect of today's data is that it further confirms that the Fed is likely to hold off on reducing its purchases of MBS and Treasuries. These purchases have helped to keep rates lower than they otherwise would be, and the threat of those purchases decreasing dealt a serious blow to rates markets in the summer months.
Loan Originator Perspectives
"Another phenominal rally in MBS and Treasuries! Today is important as we have moved into fresh lows for interest rates and highs for prices. As the momentum continues 2.47 is an important resistence level on the 10 YR US Treasury yield, although their are some layers between where we are now (2.51) to get through, it is important to use these technical levels as an indicator on pulling a lock trigger. More importantlly is the decisive move below 2.60 on the benchmark, indicating both the appetite for lower rates and potential risks that still loom in the overall economy. Not a bad day to book your profits and lock up your loan(s), however there should be more to come over the coming weeks." -Constantine Floropoulos, Quontic Bank
"Christmas came early this year as another tepid jobs report sparked a broad rally in MBS markets. All lenders improved their rates, and analysts predicted Fed tapering would not occur until for at least several more months. Time for refi procrastinators to get on the phone with a loan officer, rates well down from just a month ago. Folks shopping for homes may now be able to afford more house. Happy NFP Tuesday!" -Ted Rood, Senior Originator, Wintrust Mortgage
"Surprise bad number on the jobs report. Good for rates and I think the trend will continue. Weak numbers all around. Sub 4% may be just around the corner." -Mike Owens, Partner, Horizon Financial Inc
Today's Best-Execution Rates
- 30YR FIXED - 4.25%
- FHA/VA - 4.0-4.25%
- 15 YEAR FIXED - 3.375-3.5%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- Uncertainty over the Fed's bond-buying plans and more recently over Fiscal Policy has been making for a tough interest rate environment.
- A lack of data due to the government shutdown caused rates to experience moments of paralysis while headlines suggesting the shutdown might/might-not end, as well as a seizing-up of short term funding markets caused unexpectedly high volatility--enough to be felt in longer term rates like mortgages.
- After a deal was reached to avoid going over the debt ceiling, funding markets thawed and rates returned to the same 'wait and see' range that existed before the Fiscal drama.
- Markets continue to be most interested in economic data and it's suggestions about the longer term trajectory of the economy. This will shape expectations for Fed policy in the coming months, and thus inform the direction of interest rates.
- The stronger the data the more likely the Fed is seen as reducing asset purchases. Rates would rise under this scenario, but the most recent FOMC Meeting (and more importantly, the Fed's decision to hold off on tapering) suggests that they'll attempt to keep the pace of rising rates moderate as long as inflation isn't adversely affected. The delayed release of the September jobs numbers on October 22nd helps confirm that.
- (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario. There are many reasons a quoted rate may differ from 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).