July 24, 2013
Mortgage rates were higher again today, but this time at the quickest pace in nearly two weeks. It was a clear departure from the recent trend of small day to day changes and a wake up call in some regards as to the lingering presence of volatility. In today's case, the weakness was brought on in part by stronger economic data at home and abroad, though more esoteric factors are equally in play. The net effect is an average best-execution rate that moves back to 4.5% whereas attractive buydowns to 4.25% had been dragging that average lower in recent days (those still may be attractive in some cases, but they're almost universally more expensive than yesterday, both in terms of higher outright cost, comparative advantages versus other rates. In other words, it take more time to break even on buying your rate down today in addition to the overall move higher for all rates).
While the pace of today's move was a bit abrupt compared to recent moves, the fact that we're moving higher in rate fits the theme discussed yesterday in that the recent run of good luck for rates looked to be leveling off into the beginning of this week and bottoming out on Tuesday. This is the superficial expression of the esoteric factors mentioned above. Without going into too much detail, those factors might best be conveyed like this: it's not so much that rates have recently seen a run of good luck as much as they'd found their intermediate highs on July 5th. Everything since then has been inconsequential drifting--waiting for the important events next week.
Even though the improvements on rate sheets have been a welcome side effect of that drifting, markets--especially those that most closely dictate rate movements--were never tuned in enough (low volume and participation) to suggest that we were in anything other than a holding pattern. Today brought increased participation--nothing like late June or early July, but better than the past 2 weeks--a time where the diminishing improvements suggested rates might be "leveling off." Whether or not this bounce continues higher tomorrow, it definitely reinforces the recent lower bound for rates between now and next week's major events (which begin on Wednesday). If yesterday didn't make you defensive (erring on the side of risk aversion), today should, and it suggests you stay that way until/unless Monday's low rate levels are convincingly broken.
Loan Originator Perspectives
"2 weeks of gains wiped out before noon. Exactly why locking is always smart. The losses were not expected so trying to float over night is turning out to be a losing battle. Poor economic numbers are around the corner in my opinion so rates may dip back down. The impact of higher rates is not yet reflected in housing numbers. But it will show up. " -Mike Owens, Partner, Horizon Financial Inc
"Rates continue their trudge (with some jogging interspersed) upward. If you are content with the rate you have been quoted, locking is the smart play. If you can handle your current payment (refinance types) then you can play the float game. Look for rates to increase more as we near the "September taper"." Bob Van Gilder, Finance One Mortgage
"A less than stellar 5 year treasury auction raised rates this PM. MBS prices worsened by nearly 3/4% before bouncing back slightly. It's days like today that illustrate the necessity for floating borrowers to utilize proactive loan officers who monitor the MBS market. Those who did likely avoided the widespread lender price worsens; those who didn't suffered the pain of watching the last several days' gains slip quickly away." - Ted Rood, Senior Originator, Wintrust Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.5%
- FHA/VA - 4.25%
- 15 YEAR FIXED - 3.625%-3.75%
- 5 YEAR ARMS - 3.0-3.25% 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
- 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).