September 10, 2013
Mortgage rates bounced back toward recent highs today, ending a fairly healthy two-day move lower after last Thursday saw the highest rates in more than 2 years. Today's rise in rates wasn't quite as big as the previous two days of improvement and leaves us very much in line with Wednesday's rate sheets at many lenders. The most efficient combination of upfront cost and monthly payment for Conforming, 30yr Fixed scenarios (best-execution) moved back up to 4.75% in some cases, but several lenders remained at 4.625%.
Today was a more active day for the markets that underlie interest rates. When it comes to mortgage rates, the underlying market that ultimately dictates what lenders can offer is the mortgage-backed-securities market (MBS). Mainstream media often discusses US Treasuries as a 'benchmark' for mortgage rates. While that's not technically incorrect, it's most accurate to consider mortgage rates as being tied to MBS, and MBS as frequently moving in the same direction as Treasuries.
This can be thought of like the tendency of an individual stock to move in the same direction as its broader sector. For instance, a particular gold mining company might move in the same direction as Gold itself, unless something funky was going on with the company specifically. Sometimes funky things happen to MBS, but it's rare to see evidence of that on just one day of trading.
Today was no exception as mortgage rates generally followed Treasury rates. But over the past two days, mortgages have fared a bit better than Treasuries, and this brings us to the explanation for today's weakness. In short, Treasuries have been under higher-than-expected amount of pressure from several sources that historically affect Treasuries more than MBS. Some of these factors are simply "to be endured" for Treasuries, so despite the move higher in rates today, there's still no firm long term implications to be gleaned until after Friday's Retail Sales report.
In general, rates may continue to be volatile until then, and should be exceptionally volatile afterward as markets gear up for next week's significant FOMC Announcement. This is the one where a majority of market participants expect the Fed to announce a reduction in asset purchases. The frustrating thing is that these upcoming events could conspire to help rates hold their ground (or even move lower), but unless they actually do that, all we have is the gradually higher trend to observe. In other words: "rising rate environment until further notice."
Loan Originator Perspectives
"Same ole' MBS......we can't expect a 3 day rally without any data, or doom and gloom. A couple of strong auctions and weak retail sales may help us out, but ultimately I wouldn't expect any commitment to a rally prior to next week's FOMC. The unfortunate reality is that rates are higher and expected to continue to rise (Mr. Obvious). Look for opportunities like yesterday and Friday's relief rallies to lock in. 15 days should be booked, longer time lines can consider speculating only if prepared for worst case scenario's (can qualify at a higher interest rate). Loans with more than 30 days have more flexibility to wait before locking. The consensus remains to lock at origination to avoid the volatility." -Constantine Floropoulos, Quontic Bank
"Relatively choppy MBS market today, but losses have been contained in a small range. No lender reprices as of mid afternoon. Syria off the drama meter for the moment, and it's nice to see we didn't get a pronounced sell off. Appears our short term gains are over for the moment, savvy borrowers may want to lock them in." -Ted Rood, Senior Originator, Wintrust Mortgage
"All of yesterday's gains were wiped away today. I favored locking short term loans yesterday, hope you took advantage. If not, I think floating overnight is worth the risk. We have no high impacting economic data overseas or in the USA tonight or tomorrow but we do have a 10 year treasury auction tomorrow. Today's 3 year auction went pretty well, and if tomorrow's 10 year is received just as nicely, we could rally back to yesterday's lows. " -Victor Burek, Open Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.625 - 4.75%
- FHA/VA - 4.25
- 15 YEAR FIXED - 3.75%
- 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).