May 2, 2013
Mortgage rates broke a 4 day winning streak today, moving moderately higher after hitting 2013 lows yesterday. For many, the difference will be immaterial as today's average rate is the second lowest of 2013. In fact, any of the days in this week have been at least slightly better than any other day in 2013. Conventional 30yr Fixed rates are moving between 3.5% and 3.375% with the latter gaining a significant amount of traction in the past two days. Lower rates are available, and the costs associated with buying down to those rates have been decreasing.
Today's mild dose of weakness came after a stronger-than-expected report on Initial Jobless Claims combined with a modest amount of overnight weakness in bond markets. When bond markets are weaker, the price of MBS (mortgage-backed-securities) tends to fall, resulting in higher rates. These prices almost always move in concert with Treasuries, but it's important to note the divergent days. Today is one such day with the price of 10yr Notes currently slightly higher today (higher prices = lower rates), whereas MBS prices are slightly lower.
All that having been said, the two are very likely to move in the same direction tomorrow due to the important Employment Situation Report. This is the single most significant piece of economic data on any given month and is perhaps even more important than usual due to "employment data," in general, factoring into the Fed's policies of MBS and Treasury purchases. Bottom line, the longer employment stays repressed, the longer the Fed will keep buying (in the context of acceptably low inflation, which is far from a risk at the moment). The longer the Fed keeps buying MBS and Treasuries, the longer mortgage rates can sustain current levels.
There's no better way to describe the time between tonight and tomorrow than as a trip to the Casino--at least for anyone who's been considering locking a rate any time before yesterday. The closer to mid-March you began considering locking, the more you'd be "up" in gamble-speak. Tomorrow's data doesn't necessarily equate to betting all your winnings, but it could amount to significant portion if the data is strong enough. On the other hand, if the data follows the lead of most of the preceding employment metrics, mortgage rates could improve even more.
The point is that it's the roll of the dice to hope for such things, and if it means something to you to be "up" by whatever amount you're up, then cashing in your chips could make good sense. If you're inclined to let it ride, we'd advise setting a limit as to how much of a deterioration you'd be willing to see in rates before being forced to lock at a loss versus today's offerings--same as the gambling public service announcements regarding "setting a limit."
Loan Originator Perspectives
"Bit of a quiet day in rate markets as trading desks, loan officers, and borrowers await tomorrow's NFP report. A poor ADP report on Wed reduced NFP expectations for some. Bottom line: a big miss or hit will impact rates, but most likely scenario is a report near expectations or slightly below, and that wouldn't alter rates drastically." -Ted Rood, Senior Originator, Wintrust Mortgage
"Rates are the best they have been since last year. Lock what you can because the risk is to the upside. A bad NFP # won't do much for rates, but a surprise to the upside will hurt pretty bad. Could easily reverse the nice declines with a big number. I'm not taking any chances.
" -Mike Owens, Partner, Horizon Financial Inc.
"Sticking to what I said yesterday which is that I think yesterday was the lowest rates will be before tomorrow's jobs report. Today rates are slightly worse. And while I think it's a stretch for the jobs report to rapidly exceed expectations of 153k tomorrow, a number at or just below isn't likely to take rates down meaningfully---unless it's a huge miss like March was. I'm not betting on a huge miss, I'm betting on a number very near expectations. And it is a bet, just like everyone else's bet. Clients are well served to lock rates ahead of the jobs report to capture the lows of 2013 we have now---unless they have a very strong stomach. " -Julian Hebron, Branch Manager, RPM Mortgage.
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).