January 15, 2014
Mortgage rates were higher again today, further eroding the large improvement following the weak jobs report. On a positive note, Friday's gains were so big that the week-over-week improvement remains clearly intact. Most lenders are still at 4.5% as the most efficient rate for the best qualified buyers (best-execution) on conforming, 30yr fixed loans, but today's weakness begins to bring 4.625% back into view (in that the next moderate move higher will move the prevailing rate up to 4.625% from 4.5%). When adjusted for day to day changes in closing costs, rates rose an equivalent of 0.03% today.
Most, if not all of today's motivation for the move higher came courtesy of stronger economic data this morning. In general, when scheduled economic reports are stronger than forecast, it implied upward pressure on rates. Today was no different as the strong data was certainly seen in underlying bond markets this morning, but economic data isn't the only factor in rate movement.
Other factors vary in the timing and magnitude of their effects, but one of them--the corporate debt market--has been a major consideration this week. Large companies have financing needs and when they sell bonds, they often also make other trades in bond markets to help manage risks. This primarily affects US Treasuries, but Mortgage-Backed-Securities (which are the true foundation of mortgage rates) tend to trade very closely with Treasuries.
Long story short, some of yesterday's incremental weakness was about the first leg of the corporate debt interference and some of today's seemingly inexplicable late-day strength was about that process coming full circle. Even then, when all is said and done with the corporate deals, the net effect should be little, if any lasting impact on rates.
That jives well with where we're at compared to Monday based on the economic data we've seen since then (i.e. data has been moderately stronger and rates are moderately higher). Additionally, it reinforces that upcoming data will continue to be relevant for rate movement as markets consider whether or not last week's employment data will affect Fed policy at the end of the month.
Loan Originator Perspectives
"Rough couple days for rates. Seems we might have found some support at current levels. Rates are still better today than where they were prior to the non farm payroll report on Friday. If you have floated the last couple days, I would continue to float and re evaluate your pricing tomorrow. With the weakness this morning, most lenders took away more than the current price justifies, in my opinion of course." -Victor Burek, Open Mortgage
"Yesterday's trend continued as we cut further into Friday's rate improvement. December NFP aside, there is no conviction for rates to drop. Locking at application (if pricing works for the loan) takes rate drama out of the equation. Until economic data soundly confirms a floundering economy, hard to envision any remarkable improvements on the horizon." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
"Could have been a very ugly day based on this morning's strong economic data and market movement this morning. But rates ended up displaying more resilience in the afternoon, minimizing the damage. Even then, it's been two days in a row of weakness now, and a good reminder to favor locking in general." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc. NMLS # 107434
Today's Best-Execution Rates
- 30YR FIXED - 4.5%
- FHA/VA - 4.25%
- 15 YEAR FIXED - 3.5%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- The prospect of the Fed reducing its asset purchases weighed heavy on interest rates for the 2nd half of 2013, causing volatility and generally pervasive upward movement.
- Tapering ultimately happened on December 18th, 2013. Markets had done so much to come to terms with it ahead of time that it essentially just confirmed the the 6 month move higher in rates, but didn't make for another immediate spike higher.
- That said, we should assume that we're still in a rising rate environment on average with scattered pockets of recovery providing clear opportunities to lock.
- The exceptionally weak employment data on January 10th provided on of these "pockets of recovery." There are two ways to approach these. More risk tolerant: set a line in the sand just slightly higher in cost than your current quote. In other words, this could be either the next .125% higher in rate or simply a few hundred dollars more in closing costs. Then commit to lock when your quote crosses above that line in the sand. Less risk tolerant: lock on the day of or day after any significant move lower in rates.
- (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).