July 1, 2013
Mortgage rates continued lower today, extending a recovery from recent 2-yr highs that peaked last Monday. Lenders got on board with said recovery at varying rates with some not showing signs of improvement until last Wednesday. Since then, there's been a broad move lower, shaving off at least a quarter of a point in rate for most lenders. This brings the 30yr Fixed best-execution to 4.375% for the first time in over 2 weeks.
There are several ways that the recent spike in rates has been characterized, with the most prevalent being that rates somehow "over-reacted" to the inbound information from Fed speakers and the economy. While this is understandable, it's nothing to do with reality. Quite simply, rates markets were as temporarily "broken" as they had been in quite some time. The securities that underlie mortgage markets and even broader rates markets were not trading hands in an orderly or efficient way during the worst of it. It was a chaotic time for markets with traders 'preparing for the worst.'
That preparation and that chaos is reflected in some the uglier rate sheets of the past two weeks, but it's important to understand that the extra quarter of a point higher in rates from current levels was a fairly tame margin of error. If markets had been tasked with processing similar incoming data, but without the "chaos," rates would very likely look similar to today's, which are still a far cry from the high 3's available before the Fed Announcement.
In other words, we're settling in to what we see as a more central range in a world where the Fed may taper asset purchases in September. Whereas the last quarter of a point lower in rates arrived by the simple virtue of liquidity* gradually returning, the next quarter of a point lower in rates will only show up if it has a more compelling reason. This is most likely dependent on the week's employment data, where we get major doses on Wednesday and Friday, with the latter being the big one. These numbers may affect the outlook for September tapering, and if they reinforce it, rates could certainly still move higher, whereas if they cast doubt on it, rates could continue falling. The moral of the story is that we've now realized most of the benefit that we're going to realize without additional input from the data.
* This can be thought of as how "healthy" the marketplace is in terms of the ability to confidently execute trades in the MBS and related markets (MBS = "Mortgage-backed-securities" that most directly influence mortgage rates). If traders can't confidently approach the marketplace with the ability to buy or sell close to their anticipated price, things can go south in a hurry.
Loan Originator Perspectives
"I'm advising clients to have their loans ready to lock by Weds, just in case a lock is neccesary. This Friday could be the report that continues the slow slog towards lower rates. However, it could also push us higher if the report is better than estimates. Maybe we'll get a rate friendly report. If so, then locked rates can be renegotiated lower. " -Mike Owens, Partner, Horizon Financial Inc
"Have we found the immediate bottom on MBS prices? Starting to look like it after another decent day. Rest of the week will be jockeying for position prior to Friday's NFP report. The last two months haven't been kind to us, we'll hope for a weak report to further improve rates!" -Ted Rood, Senior Originator, Wintrust Mortgage
"Consumers who are in the midst of a refinance or home purchase need to make sure their LO has all requested documentation. Often times, loans cannot be locked until that documentation is provided. In this increasingly volatile market, simply missing one page of last month's bank statement can mean .125-.25% difference in rate. " -Justin Dudek, Mortgage Professional, Supreme Lending
Today's Best-Execution Rates
- 30YR FIXED - 4.375-4.5%
- FHA/VA - 4.0 OR 4.25%
- 15 YEAR FIXED - 3.5 - 3.625%
- 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).