December 3, 2013
Mortgage rates began the day steady to slightly lower on average, though more than a few lenders were actually in worse shape. The average stayed in slightly stronger territory but that may change by the end of the day as losses in the Secondary Mortgage Market are prompting some lenders to recall rate sheets and reprice slightly higher. This won't affect the prevailing interest rate quotes, which now average 4.5% (best-execution), but it would increase the associated closing costs.
The rest of the week is fairly intense as far as interest rates are concerned. There are several major considerations, particularly for the mortgage-backed-securities (MBS) that most directly affect mortgage rates. Most of the considerations suggest a more cautious approach for MBS investors. This is evident not only in the higher rates, but also in the underperformance compared to Treasuries. In other words, the world's favorite interest rate benchmark 10yr US Treasuries will likely end the day just slightly lower than yesterday in terms of yield, yet mortgage rates for many lenders will be higher.
Of those considerations, the most important are the several major economic reports that will come out over the next three days, including the massively important jobs data on Friday. These reports aren't necessarily negative or positive, but instead stand ready to fill either role depending on how they come out compared to economists' forecasts. There is a glut of data tomorrow morning, and if it's even remotely cohesive in suggesting economic strength, rates could be higher with the first rate sheets of the morning. Weak data, on the other hand, might afford some breathing room between now and Friday, but ultimately the jobs data will decide where rates go.
Loan Originator Perspectives
"Early day gains evaporated quickly this PM as markets considered Friday's jobs report and week's other pending data. Consistently strong economic reports since September's surprise Fed decision to not taper may soon lead to lower Fed support for mortgages and lead to higher rates. Floating borrowers beware!" -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).