December 4, 2013
Mortgage rates moved higher again today, reaching levels not seen since September 17th--the day before the Fed Announced "no change" to QE asset purchases. The mortgage-backed-securities (MBS) that most directly affect rates stood ready to move either direction based on this morning's economic data. The most important report on the calendar was the ADP Employment Report, widely regarded as the best early indicator of the all-important Employment Situation Report due out this Friday. ADP's numbers were stronger than expected, causing markets to adjust their expectations for Friday. In this case, that meant selling MBS, which causes lower prices and higher rates.
For most lenders, the most prevalently quoted rate moved up to 4.625% today (best-execution). A few of the most aggressively-priced lenders are still at 4.5%, but in all cases, obtaining the same interest rate quoted yesterday will incur higher closing costs today.
Tomorrow and Friday continue to offer potential volatility. The batch of economic data tomorrow isn't nearly as big of a potential market mover as Friday's employment report, but it may still provide some motivation. Friday is a potential game-changer, however, in that a strong result will lead many investors to believe the Fed may announce a reduction in asset purchases on December 18th. This would almost certainly push rates significantly higher, though markets will accomplish quite a bit of such a move if the data is strong enough on Friday.
Loan Originator Perspectives
"As we noted yesterday, data and current trend both point to higher rates. Borrowers who locked yesterday avoided another sell off today, as new home sales and ADP's estimate of November hiring sent rates/costs up. Markets have no reason to trend lower, will need big changes in sentiment or data to change current direction. Only thing worse than locking after several weak days in the market is NOT locking, then seeing rates rise further. Float with trepidation, or lock and relax." -Ted Rood, Senior Originator, Wintrust Mortgage
"It is getting tougher and tougher not to put a stop-loss in on market activity for rates. Nothing has been friendly to MBS pricing and even with friendly data, the MBS market is not showing signs of optimism. There may be small pull backs here and there, lock on any if you get a chance, but secondary departments pay much more attention to this than most do and with the trend of positive employment data and the inherent assumption of it moving the "Taper timeframe" up, the risk of floating into tomorrow and Friday is huge." -Steve Chizmadia, Mortgage Consultant, American Capital Home Loans
"With today's much better than expected ADP jobs number, it appears Friday's nfp report will also beat expectations which will push rates higher very quickly. If you didn't lock yesterday or earlier this week, you wont enjoy locking today after the large losses of the prior couple days but locking is the wise move." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.625%
- FHA/VA - 4.25%
- 15 YEAR FIXED - 3.625%
- 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).