April 4, 2013
Mortgage rates continued moving significantly lower today, extending a rally that brought them to their best levels in a month yesterday. Because of the reasonably narrow range before that as well as size of today's move, rates are now in line with their lowest levels since late January! Best execution (what is this?) rate for 30yr Fixed loans is arguably moving to 3.5% among the most competitively priced lenders. Even at 3.625%, most lenders are charging significantly lower costs (or offering more rebate, depending on the scenario) today vs yesterday.
The improvements today were primarily fueled by yet another weaker-than-expected employment report. Yesterday's rates benefited from weaker employment readings from ADP (the payroll services company, who puts out a monthly tally of new private payroll creation) and ISM (the Institute for Supply Management, who puts out monthly reports on business conditions in Manufacturing and Services sectors, including an employment index for each). Today's data was the weekly Jobless Claims report, which showed first time unemployment filings rose more than expected last week.
In and of themselves, these numbers don't guarantee that tomorrow's all-important Employment Situation Report will be weaker than expected, but they do serve to skew the consensus. If labor markets are weakening, rates tend to move lower. If markets see reason to believe that tomorrow's report will be weaker than expected, they will begin trading for that possibility in advance. This is the most salient phenomenon at work today. A continuation of the "good times" over the past few days is heavily dependent on tomorrow morning's data results, which could have the biggest impact yet, either carrying rates toward their lowest levels of the year or undoing much of the recent improvement.
Loan Originator Perspectives
"We would normally be leaning toward locking ahead of NFP tomorrow and at these levels it makes a no brainer. We have locked everything closing within 30 days." -Alan Craft, Loan Officer, Acopia Home Loans
"If you are happy where your rate and/or rebate are, I would lock by close of business today. Sure, tomorrow the NFP report could be good for us, but it could also be horrible for us. Lenders take a lot more and a lot quicker than they give. So if your lender gets a reprice for the better, I'd lock. Pig get fat, Hogs get slaughtered!!" -Jason York, VP of VA Operations, Prime Mortgage Lending, Inc
"Lock today to take advantage of the best rates in weeks. NFP could slow us down or cause a reversal in our downward trend. " -Mike Owens, Partner, Horizon Financial Inc.
"Tomorrow's mover-- NFP. We'll see how many jobs were created in last month. I'm seeing estimates from 125,000 to 250,000+. Probably need 300,000 + in order to see a meaningful drop in the unemployment rate. What does it mean for rates?--- 1) A huge miss in the number, should see rates drop. 2) Hitting the number, may see rates remain fairly stable. 3)Over the number---- SHOULD HAVE LOCKED YESTERDAY!! Floating when you should have locked is the Originators worse choice. Should be same for Consumer as well." -Bob Van Gilder, Finance One Mortgage
"Yesterday sure seemed like a perfect day to lock, but pricing is improved today. Hind sight is 20/20, but locking yesterday was still the correct call and would make that again. My advice yesterday was to lock everything closing within 20 days. If you are still floating, todays pricing is better so you might should consider taking the gains, but i like floating here. It seems the tide is shifting away from risk to the security of treasuries and mortgage backed securities." -Victor Burek, Open Mortgage.
"Gambling can be fun, and sometimes you even win. That's the case over last couple of days as data and sentiment turned pro-MBS as originators and borrowers have been hoping. Tomorrow's NFP report is the question at this point, and we feel a bad report has been priced into MBS. Certainly the potential for more gains, but the question is how much do we gamble before putting some of the house money (gains) in our borrowers' pockets. I'm advising folks within 30 days of closing to lock unless they have a strong risk tolerance, or their specific rate/cost goals aren't available yet." -Ted Rood, Senior Originator, Wintrust 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%
- 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).