November 20, 2013
Mortgage rates shot significantly higher after today's FOMC Minutes reminded markets that the Fed is still intently considering a reduction in asset purchases. Most lenders are a full eighth of a point in rate higher than yesterday's latest rate sheet offerings--many of them fared even worse. The most prevalently quoted conforming 30yr fixed rate for ideal scenarios (best-execution) is now easily back up to 4.375%, and some lenders are closer to 4.5%. Essentially, today's rate sheets are very similar to last Wednesday's--one of the weakest days since mid September.
Today's FOMC news comes in the form of the Minutes from the most recent policy-setting meeting. That means we simply got a closer look at what the Fed was considering at the end of October before releasing their official policy statement. While recent Fed speeches have placed increased emphasis on the Fed's policy rate ("Fed Funds Rate"--the thing that's at "0-.25%") being low for long periods of time and on economic conditions not yet justifying a reduction in asset purchases, today's Minutes suggest otherwise.
If the Fed is perceived as being more willing--or even eager--to reduce the pace of asset purchase, it has a direct negative effect on bond market trading levels. These include US Treasuries and the closely correlated Mortgage-Backed-Securities (MBS) which most directly affect mortgage rates. While the fed did communicate that a reduction in bond buying remains dependent on data, the meeting in question took place before the most recent jobs report was released. Some might take this to mean that the Fed would be even more interested in reducing asset purchases than these minutes could have conveyed.
Loan Originator Perspectives
"Fed minutes released (and statement from a Fed Board member) today affirmed traders' fears that tapering is near, basically a few more strong economic/jobs reports away. Despite a strong start to the day, we lost about 1/2% in pricing, and more for lenders who initially priced later this AM. 10 year yields broke solidly through resistance at 2.75% to further confirm the damage. Glad we've had a locking bias for some time, days like today are no fun for folks gambling on lower rates." -Ted Rood, Senior Originator
"What's new. I favor locking at application once again for refinancing and asap on purchases. Head fake on recent rate dips seems to be what we're seeing. For now floating seems too risky." -Mike Owens, Partner, Horizon Financial Inc.
Today's Best-Execution Rates
- 30YR FIXED - 4.375%
- FHA/VA - 4.25%-3.75% (depends heavily on lender)
- 15 YEAR FIXED - 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 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).