December 17, 2013
Mortgage rates remained at the same level for the 4th consecutive day despite some movement in MBS (the "mortgage-backed securities" that most directly affect rates). 4.625% remains the most prevalently quoted rate for ideal, conforming 30yr Fixed scenarios (best-execution). Some lenders are well-enough priced that 4.5% is available, but it should be noted that most lenders currently have big buydowns to move lower in rate right now (meaning it can cost nearly 1% of the loan amount to drop the rate by .125%).
On top of the generally quiet market conditions, lenders have been hesitant to make any changes ahead of tomorrow's very important announcement from the Fed. Polls suggest a roughly 1 in 3 chance that Fed will announce the first reduction in QE3 asset purchases, something that would likely have a major impact on rates.
In fact, rates are likely to respond no matter what the Fed does, simply because the outlook is divided and the stakes are high. If QE3 remains intact into the new year, we'd likely see some measure of relief, with rates moving lower, even if not appreciably so.
Unfortunately for rate watchers, it continues to be the case that risks are imbalanced in favor of higher rates. If the Fed holds off here, the expectation would remain that a reduction is coming in one of the next few meetings. All things being equal, that serves to limit the extent to which rates would recover if we do in fact see a "no taper" announcement.
Add to that the troubling changes in upfront mortgage costs set to hit rate sheets in early 2014 and reasons are even fewer and farther between for a big rate rally.
(Read More: Mortgage Rates to Take Big Hit from Fee Hikes)
Reason being: lenders know that these fee increases are coming. By making lower rates available to lock, they'd essentially be stocking up on something that runs a high risk of going out of style. That wouldn't necessarily be a bad thing if the broader momentum for interest rates changed course, but unless that happens, investor demand for those lower rates is tentative at best.
Loan Originator Perspectives
"Floating into tomorrow is highly risky. If you are happy with the rate and fee structure of your current offer, you should strongly consider locking. If we get a taper announcement, it will most likely not be good for rates. I don't see them announcing a taper tomorrow, so I think rates will moderately improve over the coming days. But I would still encourage you to lock as rates could only get a little better but they could get a lot worse." -Victor Burek, Open Mortgage
"Tomorrow is the day traders have been waiting for. We have been range bound after a stronger than expected employment report earlier this month that oddly enough did not create a negative movement in MBS and TSY markets as it usually does. Was it not strong enough to convince an initial taper tomorrow? That seemed to be the consensus of traders being that it was not followed by a sell off. Very risky floating into tomorrow. No one knows what the Fed has decided and stored energy awaiting this announcement is ready to swing the markets one way or another." -Stephen Chizmadia, Mortgage Advisor, American Capital Home Loans
"Slight gains today as markets await tomorrow's Fed statement. Not to be outdone by FOMC, Fannie Mae yesterday announced pricing changes that will significantly raise rates and costs for many borrowers by early this spring. Ironic that Fed is considering dropping its support of MBS at the same time GSE's are charging borrowers more. Remains to be seen how the hikes will impact housing, but it's assured it won't benefit home buyers and borrowers." -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).