November 1, 2013
Mortgage rates continued higher today, after breaking a very long, very flat streak following last week's jobs numbers. Like yesterday, today's culprit was stronger-than-expected economic data, this time from the national Institute for Supply Management (yesterday's was the regional Chicago ISM). The losses were more pronounced, however, bringing the most prevalent 30yr Fixed conforming rate quote (best-execution) up to 4.25%.
Part of the problem into the end of this week owes itself to the trading levels that ultimately underlie and inform mortgage rates. In addition to economic data and other market fundamentals, trading of a particular security can also be informed simply by the past precedent of that security itself!
For example, if a stock price bounced several times in a row at $35.00 and moved down to at least $25.00 every time it bounced, we might conclude that the next bounce at $35.00 is also likely to result in a move to $25.00.
In that brief example, we'd be deriving all of our thoughts about that stock's price based purely on "that stock's price!" From there investors and scholars have been coming up with thousands of different ways to use just the price of the security to understand and forecast movement. This is referred to as technical analysis, and it helps explain part of the weakness of the past 3 days.
At the risk of oversimplifying, the recent flat range heading into Wednesday was seen as the end of a positive move for rates. This was true for several mainstream methods of technical analysis, though this didn't necessarily mean rates were destined to reverse. Instead, when rates reacted to Wednesday's Fed statement and Thursday morning's economic data, traders were aware of the implications suggested by the technical analysis and knew other traders would be aware as well. When both the fundamental and technical sides of the market align, momentum tends to increase.
There's a possibility that rates could bounce back early next week, but it's safer to assume the trend higher will continue until the technical trend is mature. We covered about half of that ground over the past 2 days. From there, and even if rates have bounced back, Friday's jobs report is still dominant, and likely to dictate the the next move higher or lower.
Loan Originator Perspectives
"Mentioned last week that the trend was our friend until it wasn't anymore. Well, after last two days' econ data, we've headed upward both mortgage and treasury rates. While still vastly ahead of August/mid Sept levels, looks like momentum has left the market for the moment. Next Friday's NFP report will be crucial. Floating appears to offer more risk than reward at this point." -Ted Rood, Senior Originator, Wintrust Mortgage
"Not been a good last 3 days for rates. No real spike higher, but costs are up. Should see some give back next week I think. Locking is not a bad idea if less than 30 days to close." -Mike Owens, Partner, Horizon Financial Inc
Today's Best-Execution Rates
- 30YR FIXED - 4.25%
- 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).