November 7, 2013
Mortgage rates were flat to marginally lower today. The mortgage-backed-securities (MBS) that most directly inform lenders' rate sheets were surprisingly unperturbed by the morning's GDP data and other considerations, suggesting any chance of more sincere movement is being reserved for tomorrow's Employment Situation Report. The most prevalently quoted conforming 30yr fixed rate for ideal scenarios (best-execution) remains at 4.25%.
At the moment, we're seeing some positive and negative momentum finding relative balance in bond markets (of which MBS are a part). This was the case as early as late September, when rates were coming down from their highest levels in more than 2 years. They'd settled in to an exceptionally narrow range to wait out the government shutdown and were largely successful.
The delayed jobs report released on October 22nd helped set up just over a week of the lowest rates in months. But last week's data and events pushed rates back into that narrow, sideways range seen heading into the shutdown. In terms of 30yr fixed rates, this would be the 4.25% best-execution level. The 4.125% seen on the 5-6 days following the jobs report marks the lower side of the broader range and the 4.375 seen on the last few days of the shutdown marks the opposite side.
In this sense, rates have returned to their most central recent location. The implication is that if tomorrow's jobs report is much weaker or stronger than expected, the next move would be to either side of that broader range.
Loan Originator Perspectives
"MBS prices swung back and forth today (higher in early PM) as market awaits tomorrow's NFP report. 3rd quarter GDP numbers were surprisingly strong, it's nice to see MBS weather the latest robust economic release. It remains to be seen if that trend will continue into October's jobs numbers. Floating into NFP report is not for the faint of heart!" -Ted Rood, Senior Originator
"Tomorrow brings us the employment situation report. Arguably, the most important report we receive monthly. If the report comes in better than expected, mortgage rates will rise. Worse than expected, rates will improve. So it is highly risky to float through this report. If you are happy with the rate quoted, I would recommend locking today and removing all risk. My personal opinion is the report will be favorable for rates but not sure how favorable since this report is for the month the government was shut down so investors might give it less credence." -Victor Burek
"Rates could go either way tomorrow and locking is not an unwise choice if you can pull the trigger. I seriously doubt a big rally in our favor unless the report shows a big miss. Exceeding the number could hurt rates." -Mike Owens, Partner, Horizon Financial Inc.
"Stronger economic data had pushed rates higher for the past week, yet today's impressive GDP did not. Some of that has to do with aspects of the report that were less than impressive, but markets are likely also getting in position for tomorrow's jobs report. If it joins the ranks of recent data suggesting the economy fared better than expected during the shutdown, it could be very bad for rates. The benefit of a weaker number feels more limited because weakness could be attributed to the shutdown. Locking is the safer bet." -Constantine Floropoulos, Quontic Bank
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).