October 9, 2013
Mortgage rates were unchanged today, the the underlying mortgage-backed-securities (MBS) market was volatile. MBS have the most direct effect on mortgage rates of any financial instrument and they tend to move in concert with US Treasuries. When MBS prices move quickly during the day, lenders can recall previous rate sheets and publish new ones (referred to as a "reprice"). This happened a few times today surrounding the US Treasury Auction and the release of the Minutes from the Sep 17-18 FOMC Meeting.
Thankfully, positive and negative reactions were balanced enough that rate sheets remained broadly similar to yesterday's with a few notable exceptions. On average, rates are unchanged. Conforming, 30yr fixed best-execution remains at 4.25%. Depending on your scenario and the lender, the costs involved with your quoted rate may have gone up or down from yesterday. Most lenders are so close as to not care, but a few have had bigger adjustments.
While there was rapid fluctuation between highs and lows in the underlying markets today, it all occurred in a vacuum relative to "pre-shutdown" trading. In other words, the government shutdown has sapped investors' conviction to move very far toward higher or lower rates. As such, we've been essentially stuck in this range for 2 weeks, with only minor variations from day to day. If something changes this dynamic before the shutdown ends, we won't know what it is until after it already happens.
Otherwise, it's the pent-up economic data that will do the trick. Almost all of the data that would otherwise fuel market movement has been postponed due to the shutdown. It's not even rescheduled yet, and won't be until the shutdown ends.
Loan Originator Perspectives
"When this thing bounces, it'll scare the lock right out of you. Between the Shut Down, Debt Ceiling, and delayed economic numbers, there is a lot volatility in store. No crystal ball as far as which way that cookie will crumble, but the safe bet is and has been to lock if you like the quote. Period." -Bob Van Gilder, Finance One Mortgage
"Same old, same old in DC as partisan rhetoric rules the day. Biggest non news was the September Fed minutes and Yellen nomination for Fed Chair. No surprises in either case, and bond market reaction was muted at best. The longer we're range bound due to lack of data, the greater the stored energy for a large move as debt ceiling deadline (in theory) approaches. Locked one today we'd been floating, too little potential for gains, too much for losses in most cases." -Ted Rood, Senior Originator, Wintrust Mortgage
"I can't really see a benefit to floating with the debt-ceiling issue at hand. A default next week could cause a spike in yields that would hurt rates. I believe we won't see a meaningful dip in rates until some sort of actual economic numbers are released. I'm still in the corner of those with a pessimistic view of an economy stuck in neutral. I think the jobs report trend supports this view. Rates could continue a downward trend if this trend continues. However, short term locking is wise in my opinion." -Mike Owens, Partner, Horizon Financial Inc.
"Until we get more data, rates continue to be range bound. Today's price action was up and down and it appears we will close at the top of the current range(higher rates). If the trend continues, tomorrow we should approach the lower end which should lead to better lender pricing. That said, I think floating overnight is the way to go, but stay in close contact with your loan originator and lock tomorrow if within 15 days of closing. -Victor Burek, Open Mortgage
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 is causing immense volatility in rates markets and generally leading rates quickly higher
- Expectations for "tapering" (a reduction in "QE3" asset purchases) mounted over the summer and September 18th was seen as the most likely day for a potential tapering announcement
- But the Fed decided to keep a change in QE amounts on hold until the economy could more convincingly show that rising rates (which had been rising because markets expected the Fed to taper!) wouldn't be too big an impediment to further improvement.
- That's resulted in the first meaningful "pause" in the "rising rate environment" since it began in earnest in May, 2013. This won't necessarily be an ongoing move in the other direction, and we're nowhere near May's rates yet, but it's a good opportunity to get back in the market if rising rates pushed you out sometime between now and then.
- The extent to which that remains true relies on incoming economic data. Strong data will increase the speculation that the next Fed meeting will contain a reduction in purchases
- (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).