December 5, 2014
Mortgage rates moved only slightly higher today in spite of an exceptionally strong Employment Situation Report. This particular jobs report is the biggest of the month, and by far the most capable market mover when it comes to economic data. When the actual result outstrips the expectation (a median of economist forecasts), the result is almost always higher rates. The bigger the "beat" the more reliable that correlation.
And today's beat was very big. Payrolls were created at a seasonally-adjusted pace of 321k compared to estimates of 230k. It's no surprise that bond markets weakened following the report (which implies higher mortgage rates), but it was somewhat surprising to see how LITTLE they weakened considering the uncommonly beat. There were some internal metrics within the report that served as caveats to the positivity, but the fact is that bond markets wouldn't have been able to hold as well as they did if there wasn't some measure of latent positivity.
In other words, all other things being equal, we can conclude that rates aren't feeling predisposed to run higher into the end of 2014 without more motivation from events and data. Of course we can't simply shut off that data and those external events, but we can at least hold out some hope that they'll work with us and not against. Moreover, we can keep more of an open mind about the risks and rewards of locking and floating.
The most prevalently-quoted conforming 30yr fixed rate for top tier borrowers remains at 4.0%, with the weakness being seen in the form of moderately higher closing costs.
Loan Originator Perspective
"Another solid jobs report has come on gone without too much negative impact on rates. Most lenders pricing today is similar to yesterday morning but worse than the repriced sheets we received late yesterday. As i advised yesterday, if you floated into this report, you are basically floating until at least Monday. Despite some mid afternoon reprices for the worse, i would continue to float to see if the trend of rates worsening going into jobs Friday but improving over the following couple weeks will continue as i suspect it will. MBS continue to be in the lower range of the declining long term range we have seen all year long." -Victor Burek, Open Mortgage
"Well, the suggestion all week was to avoid large risk and the sooner in the week you locked, the better. If you didn't lock and/or you are just starting a transaction....what do you do now? Considering the numbers from the Employment Report, we could, and probably should, be much worse off. Why aren't we? I think there are a number of global factors helping create a bias toward lower rates. I'm personally suggesting floating over the weekend, but if we see any more selling on Monday...it's time to start locking immediately." -Brent Borcherding, brentborcherding.com
"As predicted, NFP did impact our pricing, following a report that soundly exceeded expectations. It's almost surprising that we've only lost 12/32 in pricing at 1:30 Central time, and that's our silver lining. A report this strong could have sent rates skyrocketing, but inflation is still tame and worldwide economies are less than robust. If you're not locked already, and have time on your side, floating is a reasonable possibility. Discuss a "stop loss" strategy with your LO, so if rates spike upward, you'll avoid full impact of the hit to your loan's pricing." -Ted Rood, Senior Loan Originator, MB Financial Bank
"A huge beat on today's Jobs Report along with positive revisions to the last two months pushed mortgage pricing and rates much worse today. But, based on historical precedence it could have been much worse so all in all we should feel somewhat lucky. Where we go from here is tough to say so borrowers really need to just check their tolerance for risk at this point. If you're closing is soon I think you should strongly consider locking in these price levels. If your closing is further out, and you're in a position where you can bear the result of further deterioration (if it happens) then rolling the dice MAY result in a benefit down the road but be ready to pull the trigger." -Hugh W. Page, Mortgage Banker, Seacoast Bank
Today's Best-Execution Rates
- 30YR FIXED - 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).