December 5, 2013
Mortgage rates were almost perfectly flat today, despite moderate weakness in bond markets. This is largely a factor of yesterday's weakness and the fact that it coincided with the morning rate sheets. While some lenders did undergo price improvements yesterday afternoon, they were generally conservative with more important data yet to come. The most prevalently quoted rate for an ideal Conforming 30yr Fixed loan (best-execution) remains at 4.625%.
Tomorrow is the big day--the mighty Employment Situation Report (aka the "jobs report," NFP, Payrolls, etc). As always, this is the biggest potential market mover of any given month in terms of economic data, even during times where it's not seen as a critical component in Fed policy decisions. So the fact that financial markets see a strong jobs report as prompting the Fed to reduce asset purchases sooner than later, makes this instance extra important.
A rather morbid silver lining heading in to tomorrow is that interest rates have risen quickly enough during November and early December that bond markets (which underpin mortgage rates) won't be as surprised as they otherwise would be by a strong number. In a way, interest rates have been defending against a strong number with all the recent weakness. While this doesn't mean that rates couldn't move swiftly higher tomorrow if the data surprises, it might serve to limit the pace of the increase.
The trickier question concerns where rates would go if the data was significantly weaker. The consideration here is that the tone of the economic data in general combined with what we know about Fed policy leads markets to conclude that monetary policy will be getting less friendly some time in the next few months. Some people think it happens in 2 weeks, others think not until April.
Whatever the case may be, as long as most market participants believe it's on the horizon, it will continue to be unlikely that we see new major lows in rates. We're at 4.625% now and the last major low was 4.25%. Tomorrow's data alone isn't enough to get us back there, even though a "miss" (weaker than expected data) could buy some breathing room between here and the FOMC announcement in 2 weeks.
Loan Originator Perspectives
"Nearly a flat day after a down start in MBS markets. Weekly jobless claims were lower than expected and GDP growth higher. Friday's November NFP jobs report is the 800 lb. gorilla in the room. Rates will increase quickly should the report exceed expectations, and lenders issue rate sheets after the report is released. Economic momentum is positive, rates on upward trend. Until that changes, tough to be excited about floating loans." -Ted Rood, Senior Originator, Wintrust Mortgage
"Based on the recent beatings we've endured in MBS pricing, I see no reason to expect a reprieve. Lock if you can and relax knowing tomorrow you avoided another beat down. Until something negative comes into view rates are determined to set new highs." -Mike Owens, VP of Mortgage Lending Guaranteed Rate, Inc.
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).