August 26, 2013
Mortgage rates continued lower today after a weaker-than-expected economic report this morning from the manufacturing sector. Not only does weak economic data put downward pressure on interest rates in and of itself, it also helps firm up the consensus on when and how the Fed will begin reducing its asset purchases. "Sooner and bigger" is worse for rates, but the more weak data, the more the implication shifts towards "later, less, or both."
The data was out before lender rate sheets and markets had largely reacted to it by then, but MBS (the 'mortgage-backed-securities' that most directly influence mortgage rates) stayed strong all day, indirectly benefiting from the geopolitical risk that was hurting the stock market in the afternoon. Some lenders released improved rate sheets throughout the day, resulting in a 30yr fixed rate moving firmly back down to 4.625% now (best-execution), for the most ideal scenarios. Some lenders are well-priced at 4.5%, but they are the exception.
Whereas last week was relatively quiet in terms of economic data, this week has at least one relevant report each day. If this reports continue to display the same sort of weakness seen on Friday and today, rates could continue slightly lower into Labor Day weekend. Every time we've seen these consolidative moves during the past several months of rising rates, they've presented an opportunity to lock before rates ultimately continued higher. This time will be no exception if next Friday's Employment numbers are as strong or stronger than expected.
Loan Originator Perspectives
"Consistent with our outlook on Friday, the market has started the week where it left off. We would like to see additional data, and some rhetoric from the FED to assist in the recent move as the week progresses. I am curious to see if we can break the high 2.7's before we break above 2.90. Right now it looks like a strong possibility. If closing within 2 weeks, today is a good day to lock. Longer term can consider floating into this weeks data, but bear in mind if we have any losses this week with NFP next week you can be in for a long ride to recovery if things don't pan out." -Constantine Floropoulos, Quontic Bank
"July's durable goods orders came in well under expected levels this AM, and MBS levels improved off of Friday's gains. Nice to string some bond friendly economic news together for a change. Rest of the week contains copious data. If it continues in a similar vein, further improvement is possible, but far from assured. Given the volatility we've been enduring for the past 3 months, it's tempting to take these gains and run." -Ted Rood, Senior Originator, Wintrust Mortgage
"We've had 2 days in a row of decent pricing improvements. Great time to lock in your rate and terms. You can always renegotiate your lock terms if rates continue to drop." -Kenneth Crute Branch Manager Prime Mortgage Lending Inc
"Rate sheets are modestly improved today from Friday's rally. More weak economic data has added to those gains. If you have been floating for a while, today might be a good time to lock in those gains, especially if you are within 15 days of closing. Longer term, I would float to see if these gains can be added to. Sure seems like the rapid rise in rates is starting to appear in the recent data suggesting our economy cannot withstand higher rates." -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.625%
- 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).