August 1, 2013
Mortgage rates rose abruptly today, moving highest levels since July 9th as financial markets prepare for tomorrow's important Employment Situation Report. These preparations refer to several underlying factors including the reaction to this morning's stronger-than-expected economic data as well as concern that similarly stronger data tomorrow could lead rates even higher. Today's move took 30yr Fixed best-execution to the upper edge of 4.5% with 4.625% very close. Tomorrow is an extraordinarily important day with the highest prospects for volatility since the last employment report caused the biggest one-day rise in rates of the past 10 years. It can go either way, depending on the data (which will be released well before any lenders release rate sheets for the day).
To be clear, if the data is weak enough, it would likely result in lower rates, but the range of possibilities is wide, and it's "easier for markets to play defense" against rising rates than it is to try to guess when, and by how much the longer-term trend higher will stop. It's similar to the popular phrase "no one wants to catch the falling knife." Traders aren't eager to trade rates aggressively lower in a rising rate environment. Our only big moves lower in rate since early May have been in response to even bigger moves higher. There continues to be no organic drive toward lower rates, and that continues to be very scary to anyone hoping to see lower rates any time soon.
Loan Originator Perspectives
"We're all been hugely aware of the risks posed by data this week, but the consensus was that yesterday's Fed statement and tomorrow's NFP report were the events to watch/fear. Survived the Fed release and had a nice rally yesterday, but it evaporated this AM and selling snowballed. We're down well over 100 bps in MBS pricing (translated to an additional loan cost of 1%) in pronounced late day selling. Traders must be expecting a solid report tomorrow, we'll see at 8:30 EDT. Days like today illustrate (again) how critical it is to lock loans early, as MG's commentary has said for months, we're in a rising rate environment." -Ted Rood, Senior Originator, Wintrust Mortgage
"Jekyll and Hyde market from yesterday morning to yesterday afternoon to today. Lock it you can because tomorrow could be another in our recent string of ugly Fridays. Our only hope to slow down the runaway train is a bad jobs report." -Mike Owens, Partner, Horizon Financial Inc.
Today's Best-Execution Rates
- 30YR FIXED - 4.5% - 4.625%
- 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).