August 23, 2013
Mortgage rates shot significantly lower today after the New Home Sales report showed far fewer executed purchases contracts than expected for the month of July. The move came in phases with most lenders releasing at least 2 rate sheets. Some offered bigger improvements, while others got back in line with the rest of the pack. The net effect was nearly a full eighth of a point drop in average rates for ideal scenarios, bringing best-execution down to 4.625% in many cases while some notable lenders remain at 4.75%.
In a weird way, rates fell today because rates moved so much higher over the past three months. Actually, it's not very weird at all, but sad and logical. Though there has been debate on the extent to which rising rates would hinder the purchase market, clues began emerging in late July. Today's official government figures--despite their penchant for volatility--are so far away from the previous reading and the forecast as to leave little doubt that the rate spike has finally made its way to economic data.
This downbeat data helps interest rates today in two ways. In the most traditional sense, negative economic data should always be a net positive for interest rates because a weaker economy supports lower growth, which in turn implies a decreased ability to sustain a rise in rates, all things being equal.
The more direct reason is the data's relationship to the current hot button for financial markets: the Fed's impending reduction in bond buying. The current consensus is that the reduction or 'tapering' will inevitably happen, but the timing is still debatable. Most think September, but many believe it will or should be later. If it is, then interest rates might catch their breath for a few weeks or months.
Unfortunately, we don't know if tapering is delayed until the Fed has a chance to announce it (or not) on September 18th. Before then, many market participants will firm up their conclusions based on the September 6th reading of the Employment Situation. Between now and then, reports like today's New Home Sales help give a decided nudge back in a friendlier direction.
While this doesn't signify a shift in the long term trend higher in rates, it does keep hope alive for some consolidation before the next major move. If you attempt to capitalize on these pockets of consolidation, it's important to set limits on how high rates would need to go before you'd cut your losses and lock. If you're waiting to lock right now for other reasons, this consolidation could continue if next week's economic data is even remotely as downbeat as today's data.
Loan Originator Perspectives
"Weaker than expected home sales was a great catalyst for today's bond bulls to enter and stop the bleeding of late. Floating into the weekend is usually a "no-no" however with today's aggressive move we feel next weeks lack of investors/traders, etc (end of summer exodus), should filter into next week. Some important data to look for plus earnings will be important during the week but dont expect any firm commitment until the Jobs Report in early September. The consensus is to lock at application, however we are testing the waters here. " -Constantine Floropoulos, Quontic Bank
"Solidly green color today in MBS Land as data confirmed what originators already knew: higher rates in July led to reduced home sales. Who would have guessed it? The miss on new home sales (and some Jackson Hole Fed chatter on MBS purchases) gave us across the board gains on MBS, and positive reprices were common. Unlike Tuesday's "green for little/no reason" gains, at least we can attribute verifiable data to these gains. While all eyes remain on the jobs report after Labor Day, at least we have data in our corner for a change!" -Ted Rood, Senior Originator, Wintrust Mortgage
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).