July 3, 2013
Mortgage rates moved higher today, and more convincingly compared to yesterday's moderate weakness. Despite the fact that this move is still in line with a broader 'leveling-off' process following recent multi-year highs at the end of June, the swifter pace today means that some borrowers may be looking at a higher quoted rate. Conventional 30yr Fixed best-execution rates generally moved back up to 4.5% today though paying extra closing costs in order to move lower in rate can make good sense depending on your scenario.
Market behavior was moderately predictable today. Stronger-than-expected employment data caused early weakness for bond markets, setting a tone that persisted for the rest of the shorter-than-normal session (markets closed early today and will be fully closed tomorrow in observance of Independence Day). When bond markets are weakening, prices of the mortgage-backed-securities that most directly affect mortgage rates are usually falling. As those prices fall, rates rise.
Markets are especially concerned with employment data at the moment as it's widely held to be the most accurate barometer measuring the Fed's intent to reduce asset purchases. That potential reduction, or tapering, accounts for most of the major shift in interest rates starting in May. The 800-lb gorilla of employment data arrives on Friday morning in the form of The Employment Situation Report. Most market participants see September as the likely target month in which the Fed will announce tapering. If Friday's employment data is significant better than expected, it could shift that consensus toward the July meeting (the Fed doesn't meet in August and thus wouldn't have a scheduled policy statement in which to announce such a thing).
Although the jobs data would have to be truly stellar to accomplish such a thing, if it were to happen, the recent consolidation in rates would likely give way to new multi-year highs. At the very least it would set up yesterday's 4.375% best-execution rate as a challenging floor and further suggest a range between there and 4.875%. That said, if the data is such that September remains the focal point, rates may benefit. It's likely that some of the sentiment keeping rates elevated at the moment is simply defensiveness against the possibility of stellar jobs numbers. The less stellar they are, the more willing rates will be to move lower.
However the numbers come out, the Employment Situation report the most significant piece of data of any given month, and is only made more important by it's current role in Fed policy. It can sometimes leave markets sideways, but no other report has more potential to be a game-changer. That means that floating a loan into tomorrow is a high-stakes dice roll with big risks balanced by big rewards. If you're tasked with making a decision on Friday, keep in mind that many market participants will be out of the office, meaning we may only get a glimpse of a potentially more developed response that would come in the following week.
Loan Originator Perspectives
"Everything that can be locked is locked. Can't imagine any knowledgeable loan officer suggesting a float into the jobs report. If the last two reports are any indication, then rates will get worse. A horrible number might help as will the flare up in Egypt possibly. " -Mike Owens, Partner, Horizon Financial Inc
"The first of June's employment reports (ADP) hit this AM, and came in with more job growth than anticipated. Between that and general market apathy, MBS closed down, but still within current ranges. No reaction yet in bond market to Egyptian unrest (or Syrian for that matter), it's all about US economic data and Fed tapering. Happy 4th to all, remember, we are blessed to live in America!" -Ted Rood, Senior Originator, Wintrust Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.5%
- FHA/VA - 4.25%
- 15 YEAR FIXED - 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).