July 12, 2013
Mortgage rates didn't manage the same sort of surge lower as that seen yesterday. In fact, some lenders were unchanged, but on average, rates fell to their lowest levels of the week. Most of the positivity came courtesy of overnight movement in Europe and Asia. This started the day for rates off on a strong foot and although mid-day weakness prompted many lenders to hike rates a bit, the worst of the adjusted rate sheets were still at least as good as yesterday's. That means the 30yr fixed best-execution rate remains at 4.625%. Most of the improvements were seen in the form of lower borrowing costs. At this point, we're closer to moving down to 4.5% than up to 4.75%.
After topping out briefly at 4.875% last Friday, getting back within striking distance of 4.50% is no small relief for those hoping to see moderation in the extended move higher of the past two months. Although it was preceded by the worst week in recent memory, this week has been the best of the year in terms of outright gains. It's a good thing too, because if rates hadn't fallen at least this much, there would be less of a case to be made for a consolidation in the week's ahead.
Unfortunately, a return of sub-4.0% rates would require a significant change in economic conditions--enough to change the course of Fed policy. As long as economic metrics continue in roughly the same vein, the best rate-watchers can hope for is a broader consolidation between 4.375% and 4.875%. We stand a chance to be crossing into the lower half of that range now and next week's data and events will likely be the deciding factor. Until we break lower through that range (or until it looks highly likely that we will), it makes most sense to look for advantageous opportunities to lock the closer we are to the lower bound.
Keep in mind that "advantageous" isn't necessarily limited to prospects for movement in rates, but also lock time frames. For instance, a borrower who is 29 days away from closing has more reason lock than one who is 31 days away, all things being equal. This has to do with the lower costs involved with shorter term locks. Lenders can offer better pricing for a 30 day lock than for the next most common increment of 45 days (some lenders do 40, but you get the idea). Even then, it's important to keep an eye on what's coming up that could cause volatility. If a jobs report or Fed Announcement is scheduled for the next day, the lock time frame becomes inconsequential by comparison. In reality, any time you wait for the following day's rates, you're taking a risk that they'll be worse than today's--especially in this market.
Loan Originator Perspectives
"Another see-saw day in MBS Land today, but some dovish Fed speak at end of session helped us close near our AM pricing levels. All in all, we ended flat since Monday, but intraday volatility sure kept borrowers and originators on their toes. Fed minutes and Bernanke speak are in rear view mirror, we'll hope worst of recent selloff is as well!" -Ted Rood, Senior Originator, Wintrust Mortgage
"Locking in gains and hoping for more so that relock renegotiations are on the table. Floating from yesterday was ok, but not something I would recommend. Funny how the FED wants clarity on tapering, yet different members are contradicting each other. I think rates may settle into a range in the mid to low 4s after the quick rise. " -Mike Owens, Partner, Horizon Financial Inc
"Rates remain in a very tight range. After the 1 point increase in rates over the last six weeks, we may see some forgiveness in the MBS market and slight downward pressure going forward. BUT, if you are on the fence with a deadline coming up (contract close of escrow) DO NOT wait until last minute to lock." -Bob Van Gilder, Finance One Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.625%
- FHA/VA - 4.25% -4.75% (depending on lender buy-down structure)
- 15 YEAR FIXED - 3.75%
- 5 YEAR ARMS - 3.0-3.375% 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).