November 27, 2013
Mortgage rates moved decidedly higher today, bringing most lenders back in line with their highest recent rate sheet offerings from November 12th. In many cases, this may result in a quoted rate being an eighth of a percentage point higher today compared to yesterday, depending on the lender and scenario. In other cases, the weakness will be seen in the form of higher closing costs or lower lender credit. With today's rise, the most prevalently quoted conforming 30yr fixed rate for ideal scenarios (best-execution) is moving up to 4.5% though some lenders remain better-priced at 4.375%.
There is a lot to consider with this move higher. Certainly, the holidays can affect bond market trading, especially in the mortgage-backed-securities (MBS) that most directly influence mortgage rates. The most common side-effect is that there are fewer market participants at work making for a less liquid secondary mortgage market. Fewer participants and lower volume means that prices (and therefor rates) can move more quickly than they otherwise might. We've definitely seen some of this, and on such occasions it's not uncommon to see a bit of a correction back in the other direction after an extend holiday weekend.
Such a correction is best thought of as something to hope for versus something to plan on. In the bigger picture, it's more likely that rates have just returned to a mid-point after the recent run at the lows in October. That would suggest they begin next week in more of a neutral stance, ultimately taking their biggest cue from Friday's jobs report.
Loan Originator Perspectives
"As always, if your ability to qualify for a mortgage could be at jeopardy, why take any risks? Lock your loan. This being said, with some afternoon improvements from this mornings sell off and the lighter holiday volume, I would lean towards floating through the weekend. Stay in constant communication with your originator as next week brings us a very important jobs report that could put taper on hold or make it more of a focus for December's FOMC meeting. It is very risky floating into NFP, but could it be the report that breaks the trend of higher rates? I think the latter is a possibility. " -Steve Chizmadia, Mortgage Consultant, American Capital Home Loans.
"Ugly day today that is being exaggerated by light volume on the day before Thanksgiving. My advice to clients is to not worry about today's action. Lenders hammered rate sheets but that is typical right before a extended holiday break. My clients that didn't lock earlier in the week are floating until Monday. Even though the market is open on Friday, lenders will be very conservative with their pricing regardless of the MBS price movement." -Victor Burek, Open Mortgage
"We saw a rather pronounced selloff in MBS markets today. Lenders and borrowers HOPE it's merely market posturing on a short week with limited participation. Next week's data is the wild card, concluding with November employment report released 12/6. In the meantime, it appears there's little motivation for MBS market to improve. Would hope rates at least bounce back some next Monday as the Thanksgiving holiday fades into rear view mirror." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 4.5%
- 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).