September 4, 2013
Mortgage rates moved higher again today, making it one of the three worst days of the year for rates. The rate with the most efficient combination of upfront cost and monthly payment for ideal scenarios (best-execution) moved up to 4.75% for Conventional 30yr Fixed loans on average, though some lenders remain at 4.625% (others still are already up to 4.875%).
Attempting to make sense of why rates moved higher today is a frustrating effort that could be argued several ways. Most of the better arguments have to do with considerations that aren't overt market movers, but rather with esoteric stuff like investment fund redemptions (Investors pulling money out of mutual funds that invest in bonds, causing bond prices to fall and rates to rise) or the dynamics between corporate bond offerings, US Treasuries, and MBS (the mortgage-backed-securities that most closely influence lenders' rate sheets).
With today's rates still inside the newer, higher range of the past two months, it's much more important to consider where they could go from here. There is no shortage of opinion suggesting that rates have topped out or that they've evolved into a more gently-sloped existence. The dangerous thing about this assessment is that it's equally at home in the outlook of interest rate bulls and bears!
In other words, even those who are expecting rates to continue to rise long term looked at July and August as a 'leveling-off' process before the next big move. This is all the more important because the next two days represent the first real opportunity for that 'next big move' to start happening. It's no coincidence we're back near the edge of a 2 month range because markets are defending against the prospect that we'll soon be pushed out of that range.
In particular, Friday has been and continues to be of tremendous importance as it's the last Employment Situation Report before the September 18th Fed Announcement--widely held as the most likely announcement date for a reduction in asset purchases.
Even though a majority of the recent move higher in rates can be chalked up to 'coming to terms' with that reality, it's the nature of markets to account for multiple possibilities until one of them can be ruled out. As such, if Friday's employment data is strong enough, markets can rule out the possibility that the Fed will hold off on tapering with near certainty, and rates will go higher still.
While it's true that an exceptionally bad report could help rates in the short term, the point is that it's not safe to think rates will remain in this range simply because they haven't broken it in 2 months.
Loan Originator Perspectives
"The only bit of good news this week has been that the upper echelon support level on the 10 YR yield has held strong. The table is set for 2.90ish to either stand firm into the next two days of data or be completely annihilated. For now the line is drawn, and floating into the next couple of days can be potentially suicidal. Negative reprices have been a constant theme this week, and can only be undone by poor economic and weak jobs data flowing in over the next two days. Syria can be a small help, but I wouldn't bank on it causing anything more than a brief adjustment in money managers investment schemes. The consensus remains to lock 15 days out, 30-45 have a tough decision to make today, I am floating loans with time lines of 30+ here." -Constantine Floropoulos, Quontic Bank
"Secondary desks, loan officers, and borrowers warily eyed today's weak MBS action as rates rose prior to Thursday and Friday's crucial data. To make matters worse, a widely used pricing engine crashed today, leaving many lenders with no means to lock loans. Syria fears no longer providing market support, it's all about jobs and Fed tapering. Market sentiment is for higher rates, will take a large downside in August hiring to alter that." -Ted Rood, Senior Originator, Wintrust Mortgage
"Rates slightly worse today. Defense remains your best offense going forward. Tomorrow's unemployment number and Friday's NFP report (non-farm payroll) have not been consumer friendly for some time now. Tapering still going to happen as well. (again think defensive). Looks like the ok to fire on Syria has been given. With limited market (MBS) reaction, seems to have been baked into the cake. If a prolonged engagement ensues, unfortunately, that may be rate friendly." -Bob Van Gilder, Finance One 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).