August 20, 2013
Mortgage rates moved lower today, recovering a good portion of yesterday's losses. There were no significant economic events and much of the positivity for rates was a factor of overnight trading in Asia and Europe. In short, the correction is just that--something that wouldn't have existed without recent sharp moves higher. After moving up to a range of 4.75 to 4.875%, the most prevalent 30yr Fixed conventional rate quote (best-execution) is better characterized by a 4.625 to 4.75% range today--much better than yesterday, but still the 2nd or 3rd worst day in more than 2 years depending on the lender.
Tomorrow brings the first substantive economic data of the week as well as the Minutes from the most recent Fed (FOMC) Meeting. Economic data is increasingly important as it's seen being the only thing that will make or break the Fed's decision to reduce asset purchases on September 18th. Much of the recent rise in interest rates owes itself to the assumption that those purchases will indeed be reduced. Lousy-enough economic data would throw water on that assumption, possibly buying rates more time to consolidate and correct.
That said, the longer term expectation would be for the overall path of interest rates to move higher, even if they manage pockets of correction. Such pockets should continue to be viewed as opportunities to lock. If we're to see a more concerted push lower in rates, it would likely require a pronounced shift in the tone of economic data. We'd have to start losing ground vs holding steady and slightly improving.
Tomorrow's FOMC Minutes are a bit of wild card in that they may have a wide range of effects on rates. On occasion where the Minutes have "surprised" market participants, the resulting move in rates has been swift and large. This time, however, market participants aren't sure what the Minutes could contain that would build a stronger case for higher rates than that which has already made its way onto lenders' rate sheets. In other words, "what are they going to say to make it any worse?"
That's a fair conclusion in this case as long as it's tempered with the caveat that history hasn't always born that out. Official FOMC communications such as the Minutes and the Announcement itself should always be regarded as having the ABILITY to cause major shifts in markets, even though they don't always exercise it.
Loan Originator Perspectives
"Originators gasped with surprise and delight today as MBS charts shone green for a change. Given the events of the past few months, we'll gladly take any gains, but can't buy into a one day rally on little/no bond friendly economic news. Love to be proven wrong, but it's going to take more than a green day to change my locking sentiment." -Ted Rood, Senior Originator, Wintrust Mortgage
"Any opportunity to capture benefit should be taken at this point. All evidence shows rates are on a continued upward trend and any improvement should be considered a pause in the ascent until we see large confirming evidence to the contrary. I, like anyone who is likely reading this, hope rates will start a move lower but there just no evidence of that, at date." -Brent Borcherding, Capital M Lending
"Nice rally last night and today, but not seeing much of the gains passed along to rate sheets. If your lender reprices for the better today, I would strongly consider locking. If you don't receive any reprices better, I would float overnight but be ready to lock in the morning before the release of the FOMC meeting minutes at 2pm eastern." -Victor Burek, Open Mortgage
"Consistent with our view yesterday we expected relief following the recent selling. The question becomes where will the resistance settle, and where is support. Unfortunately support is a black whole, an endless ceiling as to where rates will stop climbing. The consensus is to lock at origination, however I am testing the waters here to see where we meet resistance. " -Constantine Floropoulos, Quontic Bank
Today's Best-Execution Rates
- 30YR FIXED - 4.625%-4.75%
- FHA/VA - 4.25% or 4.75%
- 15 YEAR FIXED - 3.75%-3.875%
- 5 YEAR ARMS - 3.0-3.50% 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).