November 19, 2013
Mortgage rates broke their 4-day winning streak, moving just slightly higher in most cases. Some lenders fared worse than others and many recalled initial rate sheets for a mid-day reprice. Most lenders are still in better shape than most of last week, but few (if any) remain in yesterday's territory. The most prevalently quoted conforming 30yr fixed rate for ideal scenarios (best-execution) remains at 4.25%, but 4.375% is a close second.
Today's weakness wasn't the result of any overt motivation from economic data or headlines. In the absence of such motivations, the financial markets that underlie mortgage rates will always be in motion to some extent. Most recently, the bonds that directly influence mortgage rates (MBS) were able to string together several positive sessions surrounding last week's Janet Yellen confirmation hearing and yesterday's weaker economic data.
Yesterday's improvements capped a relatively strong 4-day rally, and today's weakness is best thought of as a "leveling-off" process for those gains. It leaves rates in a fairly neutral position heading into a day that has much more potential to motivate movement. The first major consideration is tomorrow morning's Retail Sales report. If it's significantly stronger or weaker than expected, rates would be in motion well before lenders released their first rate sheet of the day. As such, any decision to willingly float overnight is a bit of a dice roll in hopes of a weak report (because weak Retail Sales would likely be better for rate sheets in the morning).
The afternoon brings the release of the Minutes from the most recent FOMC Meeting. Investors will be attempting to glean any available clues about the Fed's course of action at the next policy meeting in December. Even though this is merely the release of the Minutes from the previous meeting, if it changes the way investors are thinking about the next meeting, it can still have a big impact.
Loan Originator Perspectives
"MBS market gave back yesterday's gains today, and loan pricing worsened slightly. Days like today remind both borrowers and originators not to assume pricing is static. The expression "better to lock when you should have floated, than to float when you should have locked" comes to mind. Tomorrow's Fed minutes will shed further light on their thoughts on extending QE. Those minutes, combined with inflation and existing home sales data, may give the market direction its been lacking so far this week." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 4.25%
- FHA/VA - 4.25%-3.75% (depends heavily on lender)
- 15 YEAR FIXED - 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 Fiscal Policy has been making for a tough interest rate environment where we're not seeing sustained improvement unless it's a correction to even bigger deterioration.
- The Fed's bond buying is the key consideration--not just the initial reduction (aka "tapering"), but the general pace of withdrawal. We've gone from tapering being a "sure thing" in September, to it being on hold until March 2014, and now December 2013 is increasingly possible after the most recent Employment report on Nov 8th.
- 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 Fed indicated its cognizance of high rates creating headwinds for the recovery, and this suggests they'll attempt to keep the pace of rising rates moderate as long as inflation isn't adversely affected.
- (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).