June 5, 2013
Mortgage rates were mixed today, with different parts of the interest rate spectrum moving in different directions. In other words, for borrowers buying their rate down below 4%, closing costs improved by a very small amount. For rates above 4%, borrowing costs rose modestly in most cases. On average, there was no change to the average best-execution rate for 30yr Fixed, Conventional loans. However, it remains in transit between 4.0 and 4.125%, with the latter being more likely yesterday and today.
Several times in the past month, while rates have exploded higher, we've seen a day or two of relative calm amidst the chaos. At best, such episodes have lasted 2 days. Given that there's limited data tomorrow and that Friday's Jobs data is so massively important, there's more reason to believe that we could see another day of consolidation. The only downside is that this same logic suggests improvements would be limited by the looming data on the following day.
Bottom line, there's not quite as much risk at this point to floating tonight vs yesterday (risk is still elevated historically!), but not as much reward either. Focus on the latter if you're not planning on floating through Friday. If you are, just understand that you're rolling the dice and hoping to get lucky with weaker-than-expected job creation, or at the very least--the absence of a significantly stronger report. If that happens, you should have some good opportunities to pick up some lost ground between now and the Fed meeting on June 18th-19th, but if it's another strong report, you may wish you locked today (or perhaps tomorrow).
Loan Originator Perspectives
"As I said yesterday, ADP would set a tone and here we are with a slightly positive day after slightly weaker ADP. This is almost exactly what we saw last month. Things looking rosey and then NFP surprised markets with a stronger headline and big upward revisions. I personally think the revisions did the most damage, and I'm skeptical we'll see the same this time. Part of the recent drama in rates has been to guard against that possibility, so I'd like to see what we do tomorrow before I make a float or lock call, but 99% of the time I advise locking before the NFP. I could see a retracement of rates to 3.75% if the NFP stinks." -Mike Owens, Partner, Horizon Financial Inc.
"ADP's May employment report today gave MBS a bit of a lift as it fell below market expectations, and we've held these marginal gains so far, which is a start, I guess. Friday's BLS May jobs report is the elephant in the room at this point, and unless it severely disappoints, doubt it will reverse rates' recent rises. It will take several consecutive days of gains to change our locking bias. Jobs report day is always exciting in the mortgage biz, and this month's will certainly be scrutinized more than usual!" -Ted Rood, Senior Originator, Wintrust Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.0% - 4.125%
- FHA/VA - 3.25% or 3.75%
- 15 YEAR FIXED - 3.125%
- 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).