May 1, 2013
Mortgage rates kept falling today, further extending the run into the lowest rates of 2013, but not quite in all-time low territory yet. Much of today's improvement was a factor of the morning's employment data from ADP--seen as forward indicator of Friday's official Employment Situation Report. Bond markets, including the mortgage-backed-securities (MBS) that underpin mortgage rates, began improving at a solid pace well before rate sheets came out. The remaining economic data either "didn't hurt" or flat-out helped rates keep dropping ahead of the day's main event, The FOMC Announcement.
As it happens, the FOMC didn't change much from the previous statement. Bond markets backed down from their aggressive rally, raising the risk that lenders might hike rates in the afternoon, but trading levels stabilized and most lenders remain at morning levels or better. Today's move now brings 3.375% definitively into the fold as--at the very least--an equal partner to 3.5%. Lower rates make an increasing amount of sense as the costs associated with the lowest rates have benefited the most from recent movement.
This phenomenon (where the costs tied to lower rates improve more than those tied to higher rates while the whole rates spectrum is moving lower) is a natural part of broad rallies in bond markets, but was made doubly true by today's announcement that Obama appointed a new FHFA Director, the agency that oversees Fannie and Freddie. The connotation is that the new director would loosen guidelines on HARP loans and possibly explore principal reductions, which would hurt the values of the mortgage-backed-securities that govern higher rates while leaving those linked to best-execution rates relatively untouched.
Lots of movement so far this week and it's only Wednesday! Tomorrow's big data will come out of Europe (probably) and again will have it's say well before any lenders release rate sheets for the day. Then Friday's movement potential goes off the charts with the Employment Situation Report.
Loan Originator Perspectives
"Rates improved this AM as secondary departments anticipated today's Fed statement. No signs of inflation in that statement, and Fed confirmed QE will continue as planned. Although we gave back some pricing after the statement, rates are still the best of year, and Friday's NFP, combined with tomorrow's ECB statement, have the potential to further define the current awesome rates. Paying costs for 30 years at 3.25%?? Are you kidding me?? Floating has limited upside, a strong NFP could evaporate the recent gains." -Ted Rood, Senior Originator, Wintrust Mortgage
"Without a doubt, if you are closing within 15 days you should be locking. Clients with loans closing in 30 days or less should also consider locking today. If the employment report on Friday comes in better than expected, all the gains we have enjoyed over the last couple weeks will disappear very quickly and rates will move higher. If the employment report is worse, which I feel it will be, there isn't much room for sizable gains making floating through it not very advantageous. Much more to risk than gain at this point." -Victor Burek, Open Mortgage.
"I think this is the lowest rates will be before Friday's jobs report because, despite the continued MBS rallly since the last jobs report April 5, lenders won't lower rates much more than they already have until they see how Friday's April jobs report comes out. So rate shoppers with strong stomachs can wait for the jobs report, but the safe play is to lock at current levels---which are lows for 2013 and just a hair above all time record lows. " -Julian Hebron, Branch Manager, RPM Mortgage.
"Today's FOMC Announcement may have been a status quo, but tomorrow's ECB and Friday's NFP might not be. Could go either way. With that in mind, fence sitters who have been holding out should lock-in while pricing is hot!" -Justin Dudek, Mortgage Professional, Supreme Lending
Today's Best-Execution Rates
- 30YR FIXED - 3.375% - 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
- After rising consistently from all-time lows in September and October 2012, rates are challenging the long term trend higher
- Some level of panic over the European situation has returned, to the benefit of domestic interest rates.
- Domestic economic weakness has played a role in helping balance the outlook for Fed bond-buying.
- We're at a crossroads where we'll soon see if the "rising rate environment" remains intact or is successfully challenged.
- (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).