August 30, 2013
Mortgage rates had an uneventful day, moving sideways on average. Some lenders were almost perfectly unchanged, while others were slightly higher or lower than yesterday's latest levels. In virtually all cases, the only thing that would change about a rate quote from yesterday to today would be a slight difference in closing costs (as opposed to a movement in the "note rate" itself). As such, conventional 30yr Fixed quotes for the most ideal scenarios (best-execution) remained at 4.625% though some lenders are an eighth higher or lower.
It's easy to look at numbers on the computer or TV and think of financial markets as simply being open or closed. For instance, most radio listeners hear an update on stock market averages in the middle of the day and assume markets are open for business as usual, but some days depart from the usual.
Today is one such day, as it's the last day of summer. That doesn't seem like it should matter because if markets are open, they're open, right? The reason it's not quite that simple--and the factor that's easy to overlook unless you've experienced it first-hand or someone tells you--is that markets require the presence of real live human beings to function efficiently.
Especially in the realm of mortgage rates, where the onus for trading the underlying "mortgage-backed-securities" (MBS) falls on a shorter list of key players than, say, stocks or Treasuries, the absence of a few key people from a few key firms can make a big difference. In this day and age, given how "big and complex" financial markets seem to be, it may seem outrageous that a few people on vacation can change the way the day goes for everyone else in their sector.
Not only is this unequivocally true for the specific sector in question, but due to the highly interconnected nature of similar investments, it can affect other sectors too. For instance, even if Treasury traders are in more abundant supply on days like today, they might adjust strategy based on something that MBS traders are doing. In that case, the absence of just a few people has an exponential effect.
Because of this, there's almost an unspoken agreement among market participants that makes days like today uneventful in all but the most unexpected scenarios. The economic data was close enough to expectations and the headlines were tame enough that market participants and trading levels were able to file toward the exits in a fairly orderly manner.
All this changes next week as market participation picks up and the massively important Employment Situation Report is released on Friday. While no single point of data has the power to completely set the tone for interest rates, this jobs report is head and shoulders above any other piece of data. It can go a long way toward confirming or rejecting the idea that the Fed will taper asset purchases at the September 18th meeting, and such confirmation could put noticeable upward pressure on rates after weeks of calmer consolidation.
Loan Originator Perspectives
"I have never been a fan of locking on Fridays, and even less of a fan of locking on a Friday ahead of a 3 day weekend. Lender pricing this morning is a little better than yesterday so if you are happy with the rate and costs being offered, nothing wrong with locking especially if within 15 days of closing. Loans closing in over 15 days, I would consider floating and see what lenders offer on Tuesday morning but this does come with some risk as much can happen over the next few days. " -Victor Burek, Open Mortgage
"Slow, flat Labor Day trading today at MBS desks as the few traders present warily eyed Syria and next week's data. We retained yesterday's gains, which is always a plus. Today marks the end of summer for bond traders, expect more volume and definition next week. Don't expect any decisive moves until August's NFP on 9/6, regardless of "surprise" Syrian developments." -Ted Rood, Senior Originator, Wintrust Mortgage
"Definitely a great way to end the week, the month, and head into the long weekend- FLAT! Overall not a bad week, although the volatility was a bit rough, we ended the week with a net gain. Data has been mixed but primarily week, and most of the strong data points like 2nd Q GDP is in the rear view mirror. Friday's # is huge, but there is data prior to NFP including ADP, Fed beige book, & ISM to name a few that can influence trading over the course of the week. Floating into next week is extremely dangerous and perhaps suicidal if you are closing within 21 days, however if you have more time I am a believer that the 3rd Q should hold an opportunity for fence sitters and rate watchers (September is the last month of the 3rd Q)." -Constantine Floropoulos, Quontic Bank
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).