December 11, 2013
Mortgage rates moved sharply higher today, erasing more than half of the improvement seen in the relief rally of the past 3 days. That rally was something of a paradox in that stronger employment data (as seen on Friday) typically pushes rates higher.
Rates had been exceptionally weak through the entire month of November and into early December, leaving them in an overly defensive position ahead of a jobs report that wasn't that much better than expected. In such cases where market trading levels are somewhat offsides, it's not uncommon to see a "relief rally" lasting anywhere from a few hours to a few days.
The absence of economic data and events during the first three days of the week allowed the positivity to continue unchecked, but the longer a relief rally continues, the more likely it is to bounce. With some help from headlines and an eye toward the week's first significant piece of economic data tomorrow morning, today became the day for the bounce.
The headlines in question concern the promise of a budget deal from the House. This is a domino in the mortgage rate equation because the Federal Reserve cites "Fiscal Drag" (uncertainty and lack of legislation surrounding the budget, sequester cuts, and debt ceiling) as a reason for delaying a reduction in bond buying.
That bond buying is a positive factor for mortgage rates, and although markets have mostly come to terms with the fact that it will be curtailed in coming months, if that were to happen at next week's Fed meeting as opposed to some time in early 2014, rates would likely rise.
Had the budget deal already been passed, rates may have risen more abruptly. From 4.5 percent yesterday, rates are back up to 4.625 percent in many cases for ideal, conforming 30yr Fixed scenarios (best-execution).
The biggest event on the horizon is next Wednesday's FOMC Announcement. This will almost certainly set the tone through the end of the year. The pre-game warm-up for that main event begins with tomorrow's Retail Sales report--at least it could. If the numbers are much stronger than expected, rates could continue higher, but they could stabilize if the report is significantly weaker.
Loan Originator Perspectives
"We've had a nice bounce back from the highest rates we have seen in quite some time. The overall trend still seems to be in the favor of higher rates to me and I think it is a great time to take the gains you received over the course of the last handful of trading days (even if you lost a small amount today) and lock in. It is tempting to float into the Fed meeting if your timing permits, but I don't think it is worth it. " -Steve Chizmadia, Mortgage Advisor, American Capital Home Loans
"That gift I mentioned yesterday is about to be taken back. Lock at application on a refinance and asap on purchases. Can't see anything moving us lower in rates." -Mike Owens, VP of Mortgage Lending Guaranteed Rate, Inc.
"MBS markets paused their recent gains today as pricing worsened slightly. No definitive reason for the shift, but then again the gains weren't data driven. Borrowers could certainly do worse than current rates, and given the lack of data, it's hard to imagine markets being motivated to improve substantially." -Ted Rood, Senior Originator, Wintrust Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.625%
- 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.
- 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).