February 5, 2013
Mortgage rates did a complete 180, reversing yesterday's improvement, and taking rates back in line with recent highs. That sounds fairly ominous, and in the sense that further weakness would mean new multi-month highs, it is. But less ominous is the fact that rates continue to operate in a narrow range where the only major day to day changes have been seen on the COST side of the equation. There's further explanation in our daily link to "best-execution" rates, but the other side of the equation is the RATE itself. Those have been steady over the past two weeks with 30yr Fixed, Conventional Loans at 3.625%.
(What is A Best-Execution Mortgage Rate?)
Markets are getting back in the habit of drawing a majority of their conclusions about trading levels from the overnight and early morning activity in European markets. To that end, European markets have generally been suggesting higher interest rates for countries like Germany and the US, which benefited greatly from "safe-haven" demand during the more climactic moments of EU financial crisis. Bond markets began the week with their best session in months yesterday thanks to Europe. Now today, following stronger economic data in Europe, all of Monday's fears have been undone, leading investors back toward riskier assets and away from Treasuries and MBS (the mortgage-backed-securities that most directly influence rates). Lower prices in MBS mean higher rates on lenders' rate sheets.
The potential silver lining here is that rates aren't any worse than their previous "worst levels of the year." There are two ways to approach that information. In one way, it builds a sense of defensive support--a sort of ceiling that's yet to be breached. As long as that ceiling continues to hold, it's not entirely unreasonable to hope for opportunities to lock in a rate below that level. In that case, a break above the ceiling would force your hand and you'd have to lock at a loss vs. today's rates.
The other approach is more defensive, and that's to view this revisiting of multi-month highs as a sign that it's only a matter of time before new highs are made. Both approaches are valid and depend on your level of risk tolerance. What we DO know however, is that rates have been trending higher, and we have yet to definitively break that trend despite today's rates merely matching previous highs.
Loan Originator Perspectives
"Rates just cant seem to muster a 2 day rally. Hopefully you were able to lock after the positive reprices we enjoyed yesterday afternoon. If not, rate sheets already reflect the worsened rates so i would float overnight. Seems we have pretty decent support underneath us but if that is broken it could get ugly very quick. As always float at your own risk." -Victor Burek, Open Mortgage.
Today's Best-Execution Rates
- 30YR FIXED - 3.625%
- FHA/VA - 3.25% - 3.5% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 2.875%- 3.00%
- 5 YEAR ARMS - 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates have risen moderately from their all-time lows, making for relatively increased reward for floating at the expense of greater risks of loss.
- Rates could easily move higher or lower, and unscheduled, unexpected events can ultimately have the most say in the direction.
- Near term risks in 2013 include the upcoming debt-ceiling debate in Washington as well as the Fed's policy outlook regarding securities purchases.
- Prospects For Extending The Debt Ceiling Deadline currently seem to be preventing a move back down in rate. Passage of such legislation could further support a rising rate environment.
- (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario. There can be all sorts of reasons that your quoted rate would not be the same as 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).