October 29, 2013
Mortgage rates continued flying their recent holding pattern just over 4 percent. Most lenders' rate sheets were essentially unchanged compared to yesterday's latest. Additionally, we never saw enough bond market movement during the course of the day to justify any mid-day changes. The most prevalent Conforming (best-execution) has been pinned to 4.125% with very little change in associated closing costs for a week now.
Because most lenders adjust rates in 1/8th (0.125%) increments, the next time the best-execution quote moves lower, 30yr fixed rates will be back at 4.0%. Some lenders are offering that now, but it's not the norm, and may involve additional closing costs.
So is it possible that we'll see a more broad-based move down into the high 3's? In a word, yes, but caveats apply. The concept of a "holding pattern" is carefully chosen because rates are indeed circling the runway, waiting for permission to land.
That permission can only be granted by economic developments that are "negative enough." Specifically, markets would need to see more evidence that the labor market is weak enough to unequivocally delay the Fed's timeline for reducing its bond buying program--one major factor in lower rates overall.
The surest bets when it comes to such data are the once-a-month Employment Situation Reports, such as last Tuesday's. Due to shutdown rescheduling, the next report is coming up next Friday! Even tomorrow, we'll get several pieces of data that will help decide the fate of the "circling plane," including the ADP Employment numbers which attempt to forecast next Friday's numbers. The FOMC releases a policy announcement in the afternoon, and although traders agree we're not likely to see any policy change that hurts rates, it could still make for an afternoon where rates are actually higher or lower than the past afternoons.
Loan Originator Perspectives
"Still within a confined range, safe to say tomorrow will bring a bit more to the table however the recent trend prevails. Floating appears to be safe, however with rates at multi-month lows, locking must be considered. Tomorrow's FOMC is key to any volatility, not expecting anything groundbreaking. Float on!" -Constantine Floropoulos, Quontic Bank
"Consumer confidence readings released today were the lowest since April, likely not a surprise given recent DC dysfunction. The 5 year Treasury auction came in as expected. Net result was a range bound, but slightly higher day for MBS. Tomorrow's Fed Minutes should provide interesting details on their perspective on shutdown's impact on the economy. Any pro/con tapering hints will certainly impact rates' future direction." -Ted Rood, Senior Originator, Wintrust Mortgage
"Rates remain the the low 4% range (check with your Loan Originator on your specific scenario). Lock if you like. You can not lose by locking a rate you are comfortable with." -Bob Van Gilder, Finance One Mortgage
"I think the big question is will rates dip below 4%. I feel they will and possibly next week. We'll have to see, but the economic data I believe will confirm a slowing economy which should push rates down. Home sales numbers continue to disappoint. That's the last thing the FED wants." -Mike Owens, Partner, Horizon Financial Inc
Today's Best-Execution Rates
- 30YR FIXED - 4.125%
- FHA/VA - 3.75-4.0%
- 15 YEAR FIXED - 3.25-3.375%
- 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 its 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).