April 16, 2013
Mortgage rates moved higher today, breaking a three day trend of improvements that had rates approaching their 2013 lows. The will to push back against that recent move lower was evident in the trading levels of MBS--the mortgage-backed-securities that most directly affect rates--yesterday, but market volatility surrounding the Boston bombing tragedy prevented the rest of the day from sticking to the plan. Today's highest MBS prices (higher prices connote lower rates) coincide with yesterday's pre-headline ceiling. The increase in rates has only been seen in the form of modestly higher borrowing costs while best execution (what is this?) for 30yr Fixed loans remains at 3.5%.
It's impossible to know whether or not the resistance we think we're seeing in rates markets will continue to play out in coming days and weeks. As always, if there was a way to know such things for sure, everyone in financial markets would be on the same side of the trade. There are good arguments for a generally low rate outlook in 2013, but not without volatility. There is also the possibility that we just saw a run to the lower end of a long term move higher in rates.
What we do know for sure is that rates are still very close to yesterday's multi-month lows, and that we've avoided any major negative episodes for over three weeks. Combine that with the mere possibility that trading levels are encountering resistance and it continues to suggest a defensive stance (defensive = locking if you like it). That's not to say that floaters can't be rewarded if the market moves in their favor, but in terms of risk vs reward, we'd find it hard to advocate for that stance today. The only exception would be for long-term, risk-tolerant scenarios that are willing to lock at a loss in exchange to the chance to see if we make further gains.
Loan Originator Perspectives
"Quiet day in the rate markets as both stocks and commodities regain some of yesterday's rout. Rates edged up, but look to be establishing a better trading range in April vs March/Feb. Nothing wrong with floating carefully now, just have to have the lock button ready to go. If you're a borrower who's floating, make sure your loan officer knows your pricing goals and is prepared to lock when they can be met." -Ted Rood, Senior Originator, Wintrust Mortgage
"Although we have been trading sideways, the overall shift in the sentiment surrounding MBS has been a net positive. The current trend indicates a positive shift in interest rates, but be mindful of the fact that longer term trends clearly indicate an overall higher direction in rates. We may get lucky with additional foreign debt woes, or geopolitical turmoil, but outside of these factors we recommend locking at the lows of the trend channel. " -Constantine Floropoulos, Quontic Bank.
"Hopefully short termers locked yesterday as pricing has opened slightly worse this morning thanks to a stock market rebound. The data this morning was mixed with housing starts better(backwards looking) but permits were worse(forward looking), so data continues to point toward a slowing economy which favors lower rates. I see no reason to lock any loans today, so i am advising my clients to float over night." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.5%
- FHA/VA - 3.25% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 2.75-2.875%
- 5 YEAR ARMS - 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates have risen moderately but consistently since hitting their all-time lows in September and October 2012.
- Regardless of global or domestic economic weakness, the subsiding fear of a disorderly EU breakup will continue to prevent rates from getting back to those lows.
- This is very likely to be the case unless a similarly panic-inducing event were to come into focus, or if a disorderly break-up regained the spotlight.
- Sequestration, negative growth, and generally choppy political and economic environments around the world DO NOT constitute that sort of panic.
- This is a "rising rate environment" until further notice, though pockets of recovery and consolidation can provide smaller-scale opportunities against the larger-scale backdrop.
- (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).