December 2, 2014
Mortgage rates finally ended a 7-day winning streak today, moving higher for the first time since November 19th. The losses were not insignificant either, erasing the past 4 days of steady improvements. All that having been said, the bottom line could still be much worse. Some lenders are still competitively-priced at 3.875%, meaning a top tier borrower and scenario would be quoted 3.875% for a conforming 30yr fixed loan. Others, however, moved up to 4.0% today after just having made it down to 3.875% yesterday. The average lender is now somewhere in between.
As for the underlying causes pushing rates higher, there are no simple, satisfying explanations today. There aren't any surprisingly strong economic reports pushing stocks and bond yields higher. The biggest considerations are those that aren't readily observed or reported. They include things like corporate bond offerings and other tactical trading designed to bolster year-end balance sheets.
It's not as if lenders see these things happening and say "oh, I guess we better raise rates!" Rather, in the process of that "balance sheet bolstering," companies and traders end up taking a short position in Treasuries, which has the same effect as "selling." When there is more interest in selling vs buying, prices fall. And when prices of Treasuries fall, yields (or RATES) move higher. While mortgage rates are based on Mortgage-Backed Securities (MBS) as opposed to Treasury yields, MBS are still compelled to follow the broader bond market for the most part.
All that to say, mortgage rates are taking a hit due to fairly swift reversal in the broader bond market. Rates had been doing well into the end of November, but December brought new trading needs/goals into the fold, and those have been largely negative so far. Rates managed to hold steady yesterday because lenders were still getting caught up with MBS improvements from late November.
So will the pain continue? It's an equal possibility for now, and an early December reversal was always a risk following Thanksgiving week (which tends to stick out like a sore thumb of volatility for better or worse, only to move back in the other direction in the following week). The next three days bring events that are much more significant than anything we've seen so far this week. If they're friendly enough, they could counteract some of the underlying weakness we're seeing here, but if they're unfriendly, the combined effect could be ugly. It doesn't make much sense to bet against the prevailing momentum until it's clearly run its course. That could mean that you'd lock and then run the risk of seeing rates improve afterward. But that seems like the lesser of two evils when compared to "not locking" only to see a more substantial rise in rates.
Loan Originator Perspective
"My comments yesterday suggested that I thought we'd see weakness each day leading into the Non-Farms Payroll report on Friday. Well, today we see it and I expect it to continue. If you did not lock yesterday and you need to lock this week, I'd suggest doing so today. Floating through this week is strictly a gamble. Sure, its a gamble that could pay off, but it is a gamble none the less." -Brent Borcherding, brentborcherding.com
"Yesterday's weakness has continued again today. The good news is MBS are outperforming treasuries by suffering much less losses. In the coming days, we have an onslaught of data hitting which can impact rates. The recent trend has been for rates to worsen going into the Friday when non farm payroll data hits and that trend appears to be continuing this week. I definitely think consumers closing within the next couple weeks should go ahead and lock today. MBS are off the lows of the day, so wait to lock until as late as possible to see if we get any kind of price improvements from lenders...but i am not holding my breath." -Victor Burek, Open Mortgage
"Rates lost a little more ground today, while still staying in their well defined recent range. In most cases, lender credits decreased slightly, rather than actual rates going up. Our premier events of the month start tomorrow, with ADP's employment projection, and continue with the November NFP jobs report Friday. My stand is the same as yesterday: for now, locking is the prudent course. Those willing to roll the dice may want to float, but must accept the potential for higher costs/rates." -Ted Rood, Senior Loan Originator, MB Financial Bank
Today's Best-Execution Rates
- 30YR FIXED - 3.875-4.0
- FHA/VA - 3.25-3.5
- 15 YEAR FIXED - 3.125
- 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.
- For most of the Summer and early Fall months, rates held a narrow range of 4.125% -4.25% (essentially where the 2014 rate recovery has bottomed out) and finally broke to a 3.875%-4.0% range in mid-October. After correcting back to 4.125% briefly, November saw a calm, supportive trend that helped establish a ceiling. From there, rates trickled back down into the high 3's by the end of the month.
- 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).