August 27, 2013
Mortgage rates hit their lowest levels in nearly two weeks today. Conventional 30yr Fixed quotes for the most ideal scenarios (best-execution) are back down around 4.5% for some lenders and remain at 4.625% for many others. The most visible, mainstream explanation for the move is the geopolitical risk surrounding Syria and the effect global markets. Such risk can indeed motivate a "flight to safety" where investor demand tends to shift toward the least-risky assets like US Treasuries and out of more risky assets like stocks. While these two things are indeed happening, the whole story isn't quite that simple.
First of all, Mortgage Rates aren't directly tied to US Treasuries, but rather to MBS (Mortgage-Backed-Securities). These tend to move in a generally similar pace and direction as Treasuries meaning the two are fairly well interchangeable most of the time, if you're just looking for an idea of how much rates have moved. During these moments where markets are reacting to global headlines, Treasuries tend to get the most benefit, though MBS certainly improved today as well.
Beyond that , the entire "interest rates" side of the market appears to be acquiescing to a more determined move in stock prices. Naturally, if the situation in Syria escalates, further declines in rates could be justified, but we also have to consider that rates just hit multi-year highs, and that we're dealing with financial instruments that never simply travel in flat lines.
It's possible then, that this, the last week of summer (while market participation is still sparse compared to next week), is being seized upon as a fantastic opportunity to carve out the consolidative range we'd discussed as a possibility last week. It may feel like a potential sea-change for mortgage rates, but not only are we "not there yet," but we'd absolutely need confirmation from next Friday's jobs report in order to hope for a more pronounced or prolonged move into better levels.
That's not to say that the current move has yet to run its course, but rates seem like reluctant companions to the broader markets in this geopolitical move--merely biding their time and demonstrating their knowledge that it's easier to ride waves than to swim against the current. We can't know how much longer this will last, but we can know there will be no compunction about heading the other direction when and if the tide shifts. The biggest waves aren't a risk until next Friday, but the tide could turn even before then, depending on how headlines evolve.
Loan Originator Perspectives
"Can't recall the last time we had a solid 3 day rally. Today's geopolitical turmoil has been the main catalyst and quite frankly should shadow the market until further notice of any resolution. Data is still mediocre at best, all we need is this momentum to continue between the data, Fed chatter, and international uncertainty and we can be testing new resistance every day through NFP. It would be wise to lock here if you have gambled thus far, 15 days out should not hesitate to lock. Longer term scenarios I believe have wiggle room here as the tide has shifted, but the almighty jobs report next week will be the true challenge. Keep in mind we are in the midst of a rising rate environment and any dips should be an opportunity to alleviate risk of potential losses. " -Constantine Floropoulos, Quontic Bank
"Third time is the charm, and today was our third consecutive green day. Haven't been able to say that for a while. Next week's NFP report will be the deciding factor on where rate markets head. Until then, we'll enjoy the rally and better borrower pricing!" -Ted Rood, Senior Originator, Wintrust Mortgage
"Hard to even consider floating so I'm not. Hopefully we see a new move lower due to data not hitting as expected and then an awful jobs report to boot. Friday's housing data was the first report of several that will disappoint in my opinion. NFP report will also surprise to the down side. If rates continue the move lower, we can float down or renegotiate. I think we may see one more go at sub 4% but I don't want to get ahead of the cart. " -Mike Owens, Partner, Horizon Financial Inc
Today's Best-Execution Rates
- 30YR FIXED - 4.5 - 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).