August 14, 2013
Mortgage rates leveled off today, after moving abruptly higher on Tuesday. Bond markets, including MBS (the mortgage-backed-securities that most directly influence rates) bore little resemblance to yesterday's behavior. Trading levels barely budged from start to finish, regardless of the morning's economic data and afternoon headlines. On average, lenders were microscopically worse than yesterday's last rate sheets, but the effects would only be seen in closing costs. The most prevalent 30yr Fixed quote (best-execution) is still straddling 4.5% and 4.625%. Paying points to buy down to lower rates might make sense for some scenarios, but is comparatively more expensive than it was on Monday (meaning the cost in terms of points to move from 4.5% to 4.25% is higher independent of yesterday's overall move higher).
Financial markets have entered their final descent into utter fixation with the FOMC's ("Federal Open Market Committee," or simply "The Fed") tapering prospects. For months, the hottest topic for interest rates has been determining when and by how much the Fed will begin tapering asset purchases. Markets immediately began adjusting for those prospects as they became more real in May and June based on Fed speeches and official policy communications.
By now, we've heard from enough of the Fed board to know that--barring catastrophe--tapering will occur some time in the near future. The consensus is for this to happen on September 18th which is the next official policy announcement, but until recently, nearly as many economists and analysts believed it could be postponed until later in the year. Even in the past two days, we've heard speakers from the FOMC itself saying they don't have enough info to feel comfortable with tapering in September.
Enter the fixation. Days like today and Monday show that markets are purely interested in hard data that would help such FOMC members get more clear on their tapering stance. Days like yesterday are seen as supporting September tapering (because the Retail Sales report, while weaker than expected, wasn't bad enough to suggest the date be pushed back). Interest rates will continue to move higher the more the economic data confirms this. Today held little, but tomorrow is much busier. If the several important reports happen to make the same positive or negative suggestion about interest rates, we could see a lot of movement.
Loan Originator Perspectives
"Markets paused to take a breath today before tomorrow's important data (CPI, weekly jobless claims, and Philly Fed index). Just priced a loan, and was nearly 1% worse in pricing from Monday AM rates, but slightly improved from end of day yesterday. We're still range bound, but at the higher end of recent ranges. Will be interesting to see if that changes tomorrow!" -Ted Rood, Senior Originator, Wintrust Mortgage
"Even though its been an up and down week, we are still in a 4.5% to 4.625% range. I do not think there will be anything moving the market into dangerous territory until the jobs number, but I would lock and not take any chances." -Chris Marconi VP Residential Lending First Midwest Bank
"Tomorrow's economic data (CPI/jobless claims/Philly Fed Business index...) could bring some volatility compared to last week's tight range. Keep an open line of communication with your originator to take advantage of the dips or to avoid the rips. If you like the quote, lock it and forget about it." -Bob Van Gilder, Finance One Mortgage
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).