September 5, 2013
Mortgage rates leaped to new 2-Yr highs today, after strong economic data increased the chances that tomorrow's all-important jobs report would be similarly strong. The rate with the most efficient combination of upfront cost and monthly payment for ideal scenarios (best-execution) moved up to 4.875% for Conventional 30yr Fixed loans on average--roughly an entire eighth of a point in a single day. While some some lenders remain at 4.75%, others are closer to 5.0%--a rate that will be more prevalent if tomorrow's data is strong.
In thinking about how much rates have moved so far this week, it's important to note that the most widely used metric for changes in rates--Freddie Mac's Primary Mortgage Market Survey--relies on data collected from Monday through Wednesday of any given week. Lenders who participate in the survey are emailed Monday and asked to respond by Wednesday. This can result in a delayed response in Freddie's data vs reality.
This happened to horrible effect on June 20th, a day after the FOMC Announcement sent rates skyrocketing higher. Most survey responses would have been in before that data rocked markets, and as such, Freddie's published 30yr fixed rate was roughly a full half point lower than consumers were being quoted just one day after it was released.
We're in a somewhat similar situation this week as the Freddie survey only shows rates having risen 0.06% from last Thursday whereas the actual increase facing consumers at this moment is actually .27% on average, with almost half of that happening today alone. Freddie gets it right in characterizing rates as being near recent highs, but whereas today's survey is 0.01 lower than the August 22nd survey, real rates today are most assuredly higher right now.
Unfortunately, rates are very capable of going even higher--something we warned about in no unspecific terms yesterday. At this point in the day, there's little that can be done to lock in a rate before tomorrow's excessively important jobs data arrives. In that sense, it "is what it is," but for the sake of mental preparation, rates can still go higher if the data is strong, and the movement can still be big. If we happen to be benefiting from weaker-than-expected data tomorrow, we'll cross that bridge if we come to it.
Loan Originator Perspectives
"Ugly isn't the word for today. We ripped through 100 bps on pricing today (1 "point") in a blink of an eye, and tomorrow can be even worse. The probability that tomorrow's employment number creates a lasting improvement in rates is extremely slim. That said, after tomorrow, all focus will be on the FED later on in the month. We are poised for further potential losses as the recovery picks up steam, if you believe we are in full recovery mode. I don't think we are, but time will tell. Either way, locking at origination has been the golden rule. The problem becomes that of time needed for the lock, hence the cause for floating and gambling. At this point, if you haven't locked you may as well roll the dice into tomorrow before making the decision. Loans closing in under 15 days should have been locked already. 30+ have tough decisions to make." -Constantine Floropoulos, Quontic Bank
"More red ink on MBS charts today as strong ISM and employment data continued to firm Fed tapering expectations. Ironic that we've lost this much ground before tomorrow's August jobs report. It's said even dead cats bounce, remains to be seen whether MBS will. Personally, I'm not banking on it." -Ted Rood, Senior Originator, Wintrust Mortgage
"Locking is without a doubt the safe play heading into tomorrow. If rates dip between tomorrow and your closing date, ask for a relock or float down. If the jobs report posts a big surprise to the upside, rates will most likely jump. A surprise low number and rates stay the same. Nothing is moving them to the downside, so hoping for a dip is wishful thinking in my opinion. I guess at some point the reality of higher rates will sink in with consumers." -Mike Owens, Partner, Horizon Financial Inc.
"Rates continue their rapid ascent. If you are in contract on a property- be vigilant. If you are wanting to purchase- be patient. If you haven't refinanced- be thankful for all the time you'll save by not having to work on the mortgage process." -Bob Van Gilder, Finance One Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.875%
- FHA/VA - 4.75%
- 15 YEAR FIXED - 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).