May 22, 2013
Mortgage rates were utterly destroyed today. Not only did the average rate move above the highest seen in 2013, but rates haven't been this high since May 22nd of 2012! Of course, there's the "everything's relative" perspective, whereby we can attempt to appreciate the fact that best-execution is still around 3.75%, but the fact remains that the day over day movement was devastatingly swift, and on the the most aggressively negative end of the spectrum of possibilities heading into the day. We'll dig into some of the reasons for today's spike after the following housekeeping note.
Mortgage News Daily's rate series is updated every day, once a day (usually near the end of the day to account for any intraday reprices from lenders). It's based on actual lender rate sheets and assuming you're viewing the "updated" timestamp on this page, and assuming it's current, you can be assured that you're getting an accurate idea of the day over day change in rates. Because actual rate quotes can vary so greatly between borrower, lenders, and geographies, focusing on the day over day change is the best way to get an accurate picture of what's going on with mortgage rates.
With that in mind, the day-over-day average rose 0.09, matching several of the highest single day increases since late 2010. What's worse about today is that it arrives during a month that was already significantly worse than any previous month since December 2010. Today's losses added an resoundingly conclusive insult to injury. So why did it happen?
For those who have been following along, we've increasingly discussed the importance of today's events. In particular, markets were eager to get the official word on how the Fed might begin tapering their purchases of Treasuries and MBS. The mere possibility that today's Fed Minutes or Bernanke speech could confirm these fears was enough to cause a lot of the pain so far in May. Yesterday, we said:
the shorter the time horizon and the bigger the decrease, the worse it would be for rates. We probably haven't seen rates go quite as high as the worst case scenario would warrant, but there's also plenty of room for rates to bounce back if there's less serious talk of tapering in tomorrow's events.
As it happened, there was no discussion of dollar amounts of tapering, but the time horizons were as short as they possibly could be with the chairman himself saying the Fed "could take a step down in the pace of purchases in the next few meetings." And the next meeting is June 18-19th! In short, worst case possibilities--or close to them--were confirmed and rates went up about as fast as they go up on really really bad days.
When we say "about as fast as they go up," this isn't just a random generalization about bad days for rates. It's foundation is in the very mortgage-backed-securities (MBS) market that dictates loan pricing. Ever since the Employment Situation report on May 3rd caused bond markets (in which MBS are a key player) to reverse course, volatility has been increasing. This was kicked into high gear on May 10th when the speculation about the Fed's potential "tapering message" gained significant traction.
From then on, MBS have been on an evil roller-coaster--one whose intention is not to excite, but to terrify and nauseate; to alternately build up brief pockets of hope and reprieve only to more completely crush one's sense of safety and normalcy. What follows is a chart of MBS PRICES. Keep in mind that as prices go up, rates go down (so the lower the teal line is here, the worse it is for rates:
View Graph Here
The linear degradation of prices in mid-May is the reason we say "about as bad as it gets," because continuing to bounce along that "worse" line was about the biggest move that MBS were going to muster after coming from yesterday's highs. It was a complete traversal of the recent range and then some.
Not only is that bad because it takes MBS prices to recent lows, but this sort of volatility wreaks havoc on lenders' rate sheets. Generally speaking, the smaller the day-over-day changes, and the more consistently they move in the same direction (mid-March through April would be a fantastic and conveniently juxtaposed example), the more generous lenders can be with rate sheets. Case in point, by May 1st, rates were into their lowest levels since November 2012.
As you can see, if "prices moving lower" is bad for rates and if "bigger swings between lows and highs" is a complicating factor, then most every day during the last three weeks has been unpleasant to say the least, and today is the worst of them.
Loan Originator Perspectives
"One of the most pronounced selling days in recent MBS history today as Fed minutes and Bernanke testimony both confirmed the Fed's inclination to slow QE. We lost over 100 bps (1%) in pricing from the highs to lows of day, and are closing near the lows. Borrowers floating or starting their loans have a choice: lock and remove fears of further losses, or float and hope the market comes back. While we're likely to recover at least some of the losses over the next week, it takes a steel constitution to float in this environment." -Ted Rood, Senior Originator, Wintrust Mortgage
"Well not much to say other than I hope your loan officer had advised to lock your rate and you did. Highest rates of the year are on the plate. " -Mike Owens, Partner, Horizon Financial Inc.
Today's Best-Execution Rates
- 30YR FIXED - 3.75%
- FHA/VA - 3.25% (varies more between lenders than conventional 30yr Fixed)
- 15 YEAR FIXED - 2.875-3.0%
- 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 challenged the long term trend higher, but failed to sustain a breakout
- EU and domestic economic data remain relevant to mortgage rates, but uncertainty over the Fed's bond-buying plans through the rest of the year is causing volatility
- The further we've progressed into 2013, the faster the swings have become
- Fears about the Fed's bond-buying intentions were proven well-founded on May 22nd when rates rose to 1yr highs after the Fed confirmed their intention to taper bond buying programs sooner vs later
- (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).