January 17, 2014
Mortgage rates moved lower for the second day in a row, bringing them back to the same 6-week lows seen on Monday, on average. Some lenders were in slightly better or worse shape compared to Monday, but any discrepancies would only be noticeable in the form of closing costs. That means 4.5% remains the most prevalently quoted conforming 30yr fixed rate for ideal scenarios (best-execution). When adjusted for day to day changes in closing costs, rates fell an equivalent of 0.03% today, the same as yesterday's move.
We're now in relatively uncharted waters as far as the last 8 months are concerned. Over that time, rates have moved almost exclusively higher. The periodic corrections tended to be short-lived and to follow huge moves higher--i.e. true "corrections"--the kind you see only because markets don't move in one direction all the time. The only exception was in September (and to a lesser extent, October, but that was unique due to the government shutdown).
September is easier to relate to. Rates had just hit longer-term highs. Fed policy and employment data were center-stage. And bond markets spent more than just a few short days holding their ground and improving (when bond markets improve, rates fall). Almost all of that improvement back then was due to a major event (Fed holding off on tapering), and the same is true now (last week's Jobs Report).
Unlike last time, we don't have an impending government shutdown to help drive safe-haven demand for the bonds that would help keep rates low. That doesn't mean we're doomed, but it does leave us more vulnerable to events--particularly the FOMC Announcement the week after next.
In the meantime, there's a distinct possibility that your quoted scenario could improve next week. There's also a possibility you'll never see today's rate again. We have conflicting truths informing the present in that the long-term trend has been exclusively higher, but that the past week is also clearly a pocket of recovery, at least somewhat similar to September. There's no way to know how long this pocket of recovery will last, but until the longer term uptrend is clearly over, it makes sense to view this correction as having a limited number of days. We just used 6 of them.
Loan Originator Perspectives
"Rates have managed another day of improvements today with the help of some weaker data. The benchmark 10 year treasury note continues to bounce around near the lower trend line. I rarely advise locking on a Friday and I even more rarely advise locking ahead of a 3 day weekend, but I think if you are within 30 days of closing you should lock. The only way I would recommend floating is if you can wait until Tuesday and lock on a 15 day term, but I don't even think that is worth the risk." -Victor Burek, Open Mortgage
"We caught our second consecutive day of improvement in rate markets today. While the gains weren't huge, they did improve pricing for most loans. Next week is light on data, with no movement Monday for MLK holiday. My Magic 8 Ball said "probably so" when I asked if it was safe to float for the moment. Probably as reliable an indicator as any! As always, if you're happy with your current pricing, could certainly do worse than locking it up." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
"Can't complain, but that can quickly change. If I was a client I would lock plain and simple. We're not catching a falling knife here, but actually trying to let some helium out of the balloon." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc. NMLS # 107434
"More moderate improvements today helping to further wipe out the loss in pricing from Tuesday and Wednesdays poor sessions. We are back at the better end of the recent range of 2.82-2.90 on the 10 year and I feel it is best to lock as it seems as if some real negative reports will be needed to break below the bottom end of this range which is the only way we will see further improvements to rate sheets." -Steve Chizmadia, Mortgage Advisor, American Capital Home Loans
"When comparing today's rate sheet to last week's pre NFP sheets, we've improved around 75bps week over week. Supported by a minimal data release next week and the appearance that bond traders are buying into the idea of sluggish economic growth to start the new year, consumers should feel a bit more breathing room when considering to float." -Justin Dudek, Senior Loan Officer, Supreme Lending
"with no real market movers due out next week, it's a great opportunity to float here. however, the 10 yr yield is currently hovering around the 2.82 pivot...that tells me it's also a great time to lock in. Therefore, I'm advising my clients to float with caution" -Shane Jackson, AVP, Bank of England/ENG Lending
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).