June 24, 2013
Mortgage rates finally lost less ground than they have over the past few business days. The problem is that this still left room for rates to go higher at a much faster pace than normal. Some borrowers will have seen their quoted rate move up another eighth to a quarter, depending on the lender. After rising to 4.625% on Friday, Conventional 30yr Fixed best-execution is currently between there and 4.75%. Lenders continue to offer lower rates in exchange for increased upfront costs, but those rates have deteriorated (meaning costs have increased) significantly faster than rates in the best-execution zone.
As we often say, "volatility" is unkind to mortgage rate sheets. The wider the range of potential outcomes lenders are forced to defend against, the less aggressive they can afford to be with rates, regardless of whether or not today's rates improved. In other words, an awesome day for mortgage rates is made less awesome by volatility, and a bad day is made extra bad. In that sense, current rate levels are a product of a double whammy between current trading levels and the need to account for volatility. As of now, volatility should be assumed to be expanding or steady at high levels until we have clear reason to believe it's receding, and we're not there yet.
This continues to be one of, if not THE most significant move in the modern history of mortgage rates (in terms of the pace of change). Instead of retelling the "story" of this crash, we'll simply catalog some of the recent relevant discussions for those wanting more background on the abrupt movements:
May 22nd: Why Did Mortgage Rates Skyrocket Past 2013 Highs on Wednesday?
May 28th: Mortgage Rates Vault Catastrophically Higher
June 19th:Mortgage Rates Annihilated; Brief History of All-Time Lows
June 21st: Nightmare for Mortgage Rates: Way Worse Than Freddie Told You
Loan Originator Perspectives
"The volatility in mortgage rates has been unprecedented. Daily swings cause changes intraday and unfortunately that creates distortion for consumers. The recent volatility will not subside until the free market determines where the real bid/ask is minus the FED. Until that point expect the swings to continue. 30-45 days should be locking. Longer term may be able to float, however we do not recommend it with the current environment. We went from low 3's to high 4's in a couple of weeks, and this morning we were possibly talking 5's. the day is not over and the week just begun. " -Constantine Floropoulos, Quontic Bank
"Last Wednesday, Fed chairman Bernanke said during a post-FOMC press conference that rising home prices compensate for higher rates. Then on Friday, Bank or America Merrill Lynch's MBS team was out with a note reacting to this stance by Bernanke, saying: "we would guess the Fed assumption is that a 5% mortgage rate would be acceptable." If this is the case, hoping for a near-term dip in rates could prove futile. " -Julian Hebron, Branch Manager, RPM Mortgage
"Rates can't go any higher can they"? I don't know they went up 1/2 point last week. Market is way oversold and rates should come down a little from here I believe. Below 4% probably not, but we can live with the low 4s. Just don't need the 5s to show up. Purchases, I believe should be locked once a contract is signed, if debt ratios are pushing the limit. However, if your loan officer is a MBS Live member, they can gauge whether to lock then or float with an itchy trigger finger." -Mike Owens, Partner, Horizon Financial Inc.
"Today stands as an excellent example of why I strongly recommend my clients lock in their rate upfront. Until we see some calm rational trading days there is no better protection than locking in. " -Kenneth Crute Branch Manager Prime Mortgage Lending Inc
Today's Best-Execution Rates
- 30YR FIXED - 4.625-4.75%
- FHA/VA - 4.25-4.50%
- 15 YEAR FIXED - 3.75%
- 5 YEAR ARMS - 2.875-3.375% 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
- Uncertainty over the Fed's bond-buying plans is causing immense volatility in rates markets and generally leading rates quickly higher
- Fears about the Fed's bond-buying intentions were proven well-founded on May 22nd when rates rose to 1yr highs after the Fed indicated their intention to taper bond buying programs sooner vs later
- The June 19th FOMC Statement and Press Conference confirmed the suspicions. Although tapering wasn't announced, the Fed made no move to counter the notion that they will decrease bond buying soon if the economic trajectory continues
- Rates Markets "broke down" following that, as traders realized just how much buy-in there was to the ongoing presence of QE. These convulsions led to one of the fastest moves higher in the history of mortgage rates and market participants have not been eager to be the among the first explorers to head back into lower rate territory until they're sure they'll have some company.
- (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario. There are many reasons a quoted rate may differ from 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).