December 2, 2013
Mortgage rates moved higher today, bringing them to their worst levels since the morning of September 18th. The average 30yr fixed rate for the most ideally qualified borrowers was already on the move up at the end of last week, but today's weakness solidifies the move up from 4.4375 to 4.5% (best-execution).
Before September 18th, rates were higher still, in anticipation of the FOMC (the "Fed") policy announcement that afternoon. A clear majority of market participants expected the Fed to announce a reduction in asset purchases (QE). When that didn't happen, rates moved swiftly lower and have held in that range ever since.
Even with today's losses, we're still not back up to the pre-September FOMC levels (though we're getting closer). It's an important consideration at the moment given that this week ends with the Employment Situation Report. If any one report could be a lynchpin for Fed policy, this would be it, and the next FOMC Announcement is coming up just a week and a half later.
In other words, Treasuries and MBS (the "mortgage backed securities" that most directly affect rates) are once again getting in position for a potential change in Fed policy. This greatly raises the stakes for economic data this week. Rates can continue to move higher as long as the economic data stays strong
Loan Originator Perspectives
"The trend is not our friend. I was highly hopeful that after the lightly staffed desks leading into Thanksgiving, volume would come back and be in our favor. It came back, but not in our favor. Pick you position and lock your loan. 2.8 on the 10 year is holding. If we see a bounce back closer to 2.75 before the always important jobs data on Friday, take the small gains and lock. Too much to risk going into Friday and with the "taper" cloud looming overhead, strong numbers late this week could be a nail in the coffin for rates. " -Steve Chizmadia, Mortgage Consultant, American Capital Home Loans.
"With the way things are going, we'll be seeing highs for the year in rates. Locking is the definite call in my opinion as it appears the pain is not going away anytime soon. NFP this Friday could make is real ugly unless there is a big miss and then we might get back to recent lows." -Mike Owens, VP of Mortgage Lending Guaranteed Rate, Inc.
"Monday, Monday--- If you can manage a lock that works for your particular situation, lock. Although Christmas is coming, the rate goose may not end up so "fat" (as in lower rates). Take what works for you and be thankful!" -Bob Van Gilder, Finance One Mortgage
"Shaky start to a potentially market moving week today. MBS lost over 1/2%, meaning higher rates or costs for borrowers. Strong manufacturing data further indicated the economy is recovering. There's lots of data upcoming, concluding with the November NFP jobs report on Friday. Floating borrowers risk sudden rate movements on NFP weeks, if you choose to float, do so cautiously." -Ted Rood, Senior Originator, Wintrust Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.5%
- FHA/VA - 4.25%-3.75% (depends heavily on lender)
- 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).