December 10, 2013
Mortgage rates moved slightly lower again today, bringing them back in line with the lowest levels of the month. Recent improvements are somewhat of a paradox as rates typically move higher after stronger payrolls data, which we saw on Friday.
This time around, rates had been moving higher for the entire month of November and into early December. With the risk that last Friday's jobs report could have done more to suggest the Fed reduce asset purchases this month, rates were arguably stretched to their near-term defensive limit.
In other words, rates were set up slightly higher than they otherwise would have been. Although the report was better than expected, it wasn't by much. It left only 15% of economists foreseeing a December reduction in Fed asset purchases whereas interest rates were prepared for more of a threat.
As such, we've been able to catch a bit of a relief rally in rates. Compared to yesterday, rates are noticeably lower. Most lenders are now back down to 4.5 percent for ideal, conforming 30yr Fixed scenarios (best-execution). To the point of this being akin to a victorious battle while losing the war, apart from the past 7 days, today's rates are still the highest in over 2 months.
If we're to consider this anything other than a brief relief rally, we'd need to see additional improvement from here. It becomes progressively less likely at current levels. We've picked up enough territory that tomorrow might not be too soon to expect a push back. From there, Thursday morning's economic data may provide the next cue.
Loan Originator Perspectives
"Lack of domestic data has helped rates improve over the last couple days. The lack of data continues tomorrow, but we do have another treasury auction which if well received by investors could help this rally continue. However, I am cautioning clients to be conservative and to stay in touch. I think floating over night is safe but be prepared to lock tomorrow if the auction doesn't go well." -Victor Burek, Open Mortgage
"The market is undecided lately, not following the typical data dependent trend. Rates have improved since the jobs report which would normally have been the opposite. Until further notice, I recommend locking at application for refinances and asap for purchases. Small dips in rates and costs associated with rates are a gift so take it." -Mike Owens, VP of Mortgage Lending Guaranteed Rate, Inc.
"MBS hanging tough for a third day as lenders logged pricing gains again. No "face melting" rallies happening, but it's nice for rates to be trending down regardless. Much like the price of gas at times, MBS can improve slowly, then lose ground rapidly in response to Fed Speak or economic news. Nice to be on the improving side at moment, as long as we don't get caught when the trend reverses." -Ted Rood, Senior Originator, Wintrust Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.5%
- FHA/VA - 4.25%
- 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).