November 5, 2013
Mortgage rates rose briskly today, bringing them to their highest levels since the worst few days of the government shutdown nearly 3 weeks ago. Several lenders were only minimally worse at first this morning, but most released revised rates in the early afternoon. Some borrowers may be looking at a 1/8th increase in their quoted rate, though the average top tier scenario is still most likely to be quoted 4.25% for a Conforming, 30yr Fixed (best-execution).
Behind today's move higher was a stronger-than-expected report on business conditions in the services sector. The report in question is the ISM Non-Manufacturing Report on Business, and it's the counterpart to the ISM Manufacturing report that pushed rates higher on Friday.
Along with the regional Chicago ISM numbers on Thursday, all of these reports survey business personnel who handle purchasing for their firms. This is thought to be an excellent barometer of business conditions and a reliable indicator of other economic reports.
As such, when the ISM reports are unified in their message, it increases the odds that several other important reports may be similar in tone. This time, that unified message has been clear: the government shutdown didn't have any noticeable effect on October's economic data so far. If the reports on Thursday--and especially Friday--suggest the same, then rates could move higher still. The hikes we've seen in the past 4 days reflect the increased chance they might.
Loan Originator Perspectives
"A down day in MBS Land today as traders eyed the approach of Friday's NFP report. Today's ISM report beat expectations, one more in a string of positive economic data that may indicate Fed tapering could happen sooner rather than later. Momentum officially against us, will take a change of data to reverse that." -Ted Rood, Senior Originator
"Rates heading in the wrong direction for sure. As a hedge, locking definitely makes sense, so pull the trigger if you can. Reports being printed our not rate friendly. The biggest whammy of all could be the NFP on Friday. Low estimate could be easy to beat, kind of like the low estimates of earnings for stocks. Easy to beat a low number even if the true picture is still not good. The reaction is the problem." -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).