September 6, 2013
Mortgage rates fell appreciably today, erasing most of yesterday's move higher. On most any other day, this would be welcome development, but after spending the past 4 days moving to the highest levels in over 2 years, it merely leaves today as the 2nd or 3rd worst day in the past 2 years, depending on the lender.
The rate with the most efficient combination of upfront cost and monthly payment for ideal scenarios (best-execution) moved back down to 4.75% for Conventional 30yr Fixed loans, after rising to 4.875% yesterday. A few lenders are at 4.625% but not many.
Paying points to move down in rate becomes quite a bit less efficient below 4.75% at almost every lender. That means that clients being quoted 4.875% or 5.0% may want to weigh the trade off of paying more up front in exchange for a lower monthly payment at 4.75% if it's one of the available options.
Apart from being something of a consolation prize in light of yesterday's steeper losses, the move lower in rates is unsatisfying so far for a few reasons. First of all, the employment data that facilitated the improvement wasn't quite bad enough to clearly suggest the Fed hold off on reducing the amount of Treasuries and Mortgage-Backed-Securities they're buying each month. Markets have generally been planning on this reduction, and those expectations play a key role in the past 4 months of rising rates.
Of course jobs are good for the American economy, but the price is higher interest rates. In addition to not being bad enough to change the Fed's most likely course of action when it comes time to decide on September 18th, the report wasn't good enough to remove any doubt as to the timing and the size of the reduction! These are important details as far as interest rates are concerned, and the difference between tapered asset purchases being announced in September vs October or December makes a meaningful short term difference.
The way they handle this speedbump in employment data will also provide clues as to how they may respond to economic fluctuations in the future as they continue trying to extricate themselves from deeply embedded positions in financial markets.
The net effect is that we're left with a week and a half of market movement ahead that likely isn't quite sure what it wants to do with itself. The data wasn't strong or week enough to establish a clear trend. With no major economic reports next week until Thursday, traders will be watching other trades and simply trying to stay with the pack. Monday will tell us a lot about how the rest of the week will go.
Loan Originator Perspectives
"Although today was a strong rally, we didn't recover all of yesterdays losses and are in the deep red for the week. The most interesting technical fact about the rally is the resistance on the 10 yr @ 2.90, whereas prior to Thursdays data, 2.90 was our support. It sure feels like we have been abandoned, especially watching how stocks rally regardless of the news (traders rule). The next week and a half will be interesting as we fearfully anticipate the FED to put the nail in the coffin. If you floated into today with hope of a rally, you got it, no need to speculate further, especially if closing within 15 days. over 15-30 is a tough call, 30+ have a bit of wiggle room to see how this all pans out. Don't forget Assad & Putin....they may be a bond yields best friend in coming weeks. The consensus remains to lock at origination, especially if you do not have the stomach or the pockets for the oncoming volatility." -Constantine Floropoulos, Quontic Bank
"BLS's August jobs report came in slightly weaker than expected, with significant downward reductions in June/July's formerly strong numbers. No surprise that the labor force continued its downward trend, labor participation rate now the lowest in 35 years. Good news for MBS is that we regained yesterday's losses and borrowers have momentary rate relief. Bad news is that Fed's Sept Taper still not definitely defined and bond markets will be guessing Fed intentions until their September meeting." -Ted Rood, Senior Originator, Wintrust Mortgage
"We dodged a bullet for the moment. Considering how bad the jobs report really was we didn't get much love from the bond markets as the day wears on. Revisions and participation rates should be a concern for economic growth in the future. Rates are however, better and for a Friday that's not bad. Maybe next week will build on this small improvement. " -Mike Owens, Partner, Horizon Financial Inc.
"Even with a poor jobs report and the small amount of help in the recent slide for mortgage backed securities and treasuries we saw today, my best advice to clients based on a trend that has not been their (or mortgage advisors') friend since May is to lock at application and confirm if the lender you are working with has any renegotiation policies in place. I think a turn around is in our future, but if/when is to be determined and locking is prudent and will protect buyers/borrowers from further potential deterioration. " -Steve Chizmadia, Mortgage Consultant MLO 244902, American Capital Home Loans DBA Pinnacle Capital Mortgage Corporation NMLS 81395
Today's Best-Execution Rates
- 30YR FIXED - 4.75%
- FHA/VA - 4.25-4.5%
- 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).