October 3, 2014
Mortgage rates were just slightly higher on average today, but retained a majority of the improvement seen on October 1st. That's impressive considering what they were up against today. The most prevalently-quoted conforming 30yr fixed rate remained at 4.125% for top tier borrowers, with the losses being limited to closing costs. In terms of effective rate, the difference in closing costs would equate roughly to a 0.02% increase.
Historically, the Employment Situation Report is the most important piece of economic data as far as interest rates are concerned. When it comes out much stronger or weaker than expected, the bond markets that drive mortgage rates tend to react in a major way. Today's was certainly much stronger across the board, yet bond markets are very close to remaining unchanged on the day and mortgage rates held their ground fairly well.
This is less of a surprise when we consider the ongoing trend of bond markets showing much less than an historically normal level of interest in economic data. As I suggested last night, we ended up seeing an initial, obligatory reaction, but that was about it. Simply put, markets have come to terms with solid payroll growth (i.e. the job counts). Concerns have shifted to wage growth and its implication for inflation. Beyond the economic data, there are bigger-picture considerations having to do with European markets and trader positioning that have helped bonds and mortgage rates avoid the ill effects of their traditional enemies.
Loan Originator Perspective
"After remaining on the low side of 2.48% on the 10 yr today, I'm now confident that we are firmly within the range that is trending to lower rates. Float." -Brent Borcherding, www.brentborcherding.com
"After today's pretty solid payrolls report, it is becoming more clear that the bond market doesn't care about economic data. MBS are only down a few ticks from yesterday, but the pricing i am seeing is much worse. I would recommend to float all loans over the weekend." -Victor Burek, Open Mortgage
"Our rate markets hung tough today despite the NFP jobs report beating expectations. The market strength is a positive sign, great to stay in the current "steady to lower" rate trend. One of the biggest questions I have is how much Ebola and ISIS concerns are priced into current rates. While neither problem will be resolved soon, international drama can certainly add volatility to MBS movements. For now, borrowers with some time until closing and risk tolerance might consider floating. As always, if you like your current pricing, nothing wrong with locking it up, especially if you're stressing over potential rate increases." -Ted Rood, Senior Loan Officer
Today's Best-Execution Rates
- 30YR FIXED - 4.125
- FHA/VA - 3.75
- 15 YEAR FIXED - 3.375-3.5
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- The hallmark of 2014 has been a narrow range in rates. Too many market participants bet on rates going higher in 2014, and markets punished that imbalance with a paradoxical move lower.
- European markets helped that process along and continue to play a prominent role in keeping US rates lower than they otherwise might be.
- From a wider point of view, we're in limbo, waiting for the first significant move away from the narrow range of 4.125% -4.25% (essentially where the 2014 rate recovery has bottomed out).
- As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.' Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy. It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).