December 6, 2013
If we examine today's activity in a vacuum, Mortgage rates fought and won a heroic battle in the sense they were able to hold steady to slightly stronger despite contending with a stronger-than-expected Employment Situation Report--something that almost always sends rates higher. We alluded to this yesterday in pointing out the "morbid silver lining" that rates had recently risen quickly enough that the reaction to a stronger jobs number today wouldn't play by the normal rules. The extent to which this happened surpassed our expectations of resilience, but the resilience likely is not indicative of a fundamental shift toward lower rates.
At the end of the day, the most noticeable departure from the normal jobs report script was seen in the prices of MBS, the mortgage-backed-securities that underlie and inform mortgage rates as opposed to the rates themselves. It's not that rates didn't improve. Some lenders indeed did not, but most were a modest amount lower than yesterday. This brings the average quote back somewhere between 4.625 and 4.5 percent for the most ideal conforming 30yr Fixed scenarios (best-execution).
Meanwhile, US Treasuries definitely did not improve today. This is a clue about overall momentum in the bond market. Both MBS and Treasuries operate in the bond market, but Treasuries are the benchmark. They're more universally traded, more even-keeled, and more indicative of interest rate trends. MBS follow Treasuries like a hyperactive dog might follow along on a leash--sometimes leading, pulling ahead, and other times lagging behind.
Mortgage rates are directly affected by MBS, so it's perfectly reasonable to see rates improve a bit today despite Treasuries holding steady, but that improvement is a factor of MBS tightening up their levels versus Treasuries as opposed to overall strength in bond markets. Unfortunately, it will take overall strength in order for rates to push very far in the other direction.
This doesn't necessarily mean that rates are destined to immediately change course and shoot higher on Monday. Anything can happen in financial markets of course, but the point is that until and unless something fundamentally changes, the long-term course of rates is higher. There have been and will continue to be pockets of recovery, and these represent good opportunities to lock. When those opportunities arise, it's tempting to hope the recent improvement means more improvement will come. The more you hold out for that, the riskier it is.
Loan Originator Perspectives
"Borrowers and LO's gasped with delight today as rates improved slightly despite a November jobs report that marginally exceeded market expectations. It was widely assumed bond traders had positioned themselves for a robust jobs report. In this case, report was good, but not good enough to assure the Fed starts tapering back its purchases of treasury bonds and MBS later this month. We'll certainly take today's gains, but find it hard to assume rates are headed substantially lower. A moderate gain sure beats a large loss in any case!" -Ted Rood, Senior Originator, Wintrust Mortgage
"The MBS gods must have answered a lot of prayers. After the better than expected jobs numbers, it looked like another beat down, but actually the day turned positive soon thereafter and has held up strong since. Maybe the markets are just taking a break until next week. At any rate, if you locked yesterday it didn't hurt you and today might be your second chance at locking before the break is over and the march higher continues." -Mike Owens, VP of Mortgage Lending Guaranteed Rate, Inc.
"The guidance this site offered heading into today with relation to the NFP report was spot on. Jobs numbers followed the recent trend of better than expected economic data, so that means another sell off right? Nope, it looks as if the upper end of the recent range of the highest rates we have seen in a while held. This to me is a promising sign, but if the range were not to hold, there is no telling where the next resistance is above and beyond 3.0. I still think it is best to lock. If we have a nice rebound hopefully the lender you are working with has a retention policy in place to keep your loan and can renegotiate terms to earn your business." -Stephen Chizmadia, Mortgage Consultant, American Capital Home Loans
Today's Best-Execution Rates
- 30YR FIXED - 4.5 - 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).