June 18, 2013
Mortgage rates began the day higher, though many lenders repriced in the middle of the day with improved offerings after bond markets began improving (mover lower in rate) into the PM hours. Even after those improvements, most lenders were still in slightly worse shape vs yesterday's latest offerings, but remain fairly close. Conventional 30yr Fixed best-execution rates remained in the 4.0 - 4.125% range
There were no specific events or pieces of news to which to attribute the afternoon improvement, but considering that yesterday afternoon's movement was much more abrupt, today's merely looked like markets leveling-off ahead of tomorrow's important FOMC events. Effectively nothing has changed since yesterday, keeping yesterday's outlook relevant:
Any decisions regarding floating or locking must be based on the understanding that the post-FOMC movement can be big and the event itself could set the tone for at least the next 3 months, depending on what's said. Accordingly, if you need/want to be done with your loan process within the next 3 months, your main decision right now is simply whether or not you'll roll the dice into the Fed Announcement. The payoffs involved are relatively larger than recent dice-rolling opportunities, but the risks are equally large. While there's always some chance that any hugely important calendar event will fail to inspire significant movement in either direction, few events run the risk stamping a multi-month ceiling or floor on rates markets. This one does.
To simplify and reiterate: any event can ultimately have an almost imperceptible impact by the time trading is done tomorrow. We've seen such things happen on FOMC Announcements and Jobs reports. While that could happen tomorrow, it would take a very special blend of circumstances. Reason being: markets have moved into a defensive position to account for the possibility that the Fed does something more than mention "tapering" in the press conference (meaning a reduction in the amount of their monthly bond buying programs, largely credited with the a good chunk of the low rate environment for mortgages).
Tomorrow's events include the official policy statement at 2pm, along with the economic projections, followed by a press conference with Chairman Bernanke at 2:30pm. The chances that the Fed actually includes a reduction in asset purchases in that policy statement itself are small. If that were to happen, it would likely usher in further dark times for mortgage rates. If it doesn't happen, there's no guarantee something else might not have ill effects, but rates would have more of a fighting chance to price OUT some of the defensiveness that's been priced IN over the past 3-4 weeks.
At the risk of oversimplifying, if the Fed were to say nothing new tomorrow and if the policy announcement was unchanged, rates would likely improve. Markets are guarded against the possibility of change, but eager to improve if there is no change (or even "less change" than some fear there might be). Whatever the case, this doesn't seem like a good candidate among economic events to ultimately leave mortgage rates at the same levels as the preceding afternoon. Rates will very likely be higher or lower tomorrow night, and with a greater-than-normal chance of kicking off sustained momentum in that direction (or confirming it, as the case may be).
Loan Originator Perspectives
"It sure feels that the momentum is against lower rates, however you have to consider the consequences of higher borrowing costs and the impact that has on the general economy. From residential to commercial borrowing costs, to valuations, decrease demand, and potentially less money in consumers pockets, the drag it would have on GDP is astronomical. Makes it hard to believe the FED would allow this. Although tomorrow's Fed language holds weight on the immediate direction of rates, we feel strongly that we will see another dip. That being said, we also feel that rates have risen quite dramatically in a very short time frame and at some point we should see a move in our favor just on basic trading principles. Keep in mind, stocks look attractive because yields are too low, when yields rise further, stocks lose some of their luster. The domino effect is potentially endless." -Constantine Floropoulos, Quontic Bank
Today's Best-Execution Rates
- 30YR FIXED - 4.0 - 4.125%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25 - 3.375%
- 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
- Just as the pendulum pushed far to the positive side of the rate range in April, the opposite swing occurred in May (now the worst single month for rates on record since 2008)
- (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).