February 21, 2014
Mortgage rates moved slightly higher today despite improvements in underlying markets into the afternoon. Bond markets including MBS (the 'mortgage-backed-securities' that most directly affect mortgage rates) were in weaker shape this morning, resulting in higher rates on the initial round of rate sheets. As market conditions improved for bond markets into the afternoon, many lenders released positively revised rate sheets, but in most cases the improvements weren't enough to get back to yesterday's latest levels. On average, rates rose 0.02% when adjusted for changes in closing cost and 4.5% remains the most prevalently quoted 30yr fixed rate for the very best borrower scenarios (best-execution).
To reiterate this week's recurring theme, bond markets have been struggling to decide on the safest, most useful form of motivation in this uncommon environment. The uncommonness stems from the harsher-than-normal winter weather in much of the country and the fact that financial markets have at least partially accepted it as justification for recently weak economic data.
Normally, that weak economic data would put downward pressure on interest rates, but with some of the weakness ascribed to weather, markets are hesitating to accept the data as an accurate portrayal of current economic conditions.
Unfortunately, there's no perfect way to separate weather-related distortions from reality, and this is currently serving to keep the range of movement relatively narrow for mortgage rates and US Treasuries. Also unfortunate is the fact this weather dynamic creates something of a no-win situation for interest rates because only the negative data (which would help rates) is suspect due to weather, while positive data (which would hurt rates) would be seen as strong enough to overcome any weather-related drag.
That's not to say rates can't improve, but gains are limited, and more of a serendipitous by-product of market considerations that are not dependent on economic data. Strong data, on the other hand, could have a noticeable negative effect.
Loan Originator Perspectives
"Some decent gains for a Friday today, and the MBS Live reprice log showed 9 lenders improved their pricing intraday. Nothing earth shattering, but it's nice to go into the weekend headed in the right direction. 10 year treasuries (which indirectly influence mortgage rates) are essentially range bound in the 2.7 to 2.8% range for the moment. Can't be complacent about rates, however, if you like your loan pricing, locking ensures you won't lose ground during the loan process." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
"Despite economic data continuing to post much worse than expected results, rates have been unable to mount a rally. Economists and talking heads continue to blame the weather as the one and only cause of the weakness. Monday we do not have any data on tap, and MBS are managing to move higher following a weaker opening. A few lenders have already repriced better but with today being a Friday we probably wont get one from all lenders. My advice would be to float over the weekend." -Victor Burek, Open Mortgage.
"Is the data truly weak or has the bad weather been to strong? That is the question most traders are pondering. This leaves rates vulnerable to any data that manages to come in above consensus. As long as markets stay willing to look past weak data due to the weather, there will be an extra layer of risk without an equal reward." -Manny Gomes, Branch Manager, Norcom Mortgage
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.
- Rates moved gradually higher into the end of 2013 and began to move gradually lower into the beginning of 2014, helped along by a weak employment report on January 10th. This report raised doubts as to whether or not the Fed would continue tapering asset purchases at the same pace, but it was ultimately a flare up in emerging markets and weakness in stocks that fueled bond-market positivity and allowed rates to hit 2014 lows on the same afternoon the Fed reduced asset purchases by another $10bln.
- Rates got an ostensible push lower from weakness in stocks and emerging markets. As soon as those moves ran their course, the rate rally bottomed out as well. Now we're tentatively waiting for the next move.
- If anything, there has been some natural rebound against the nice move lower in January. Resistance to that move is low due to the fact that interest rates can't currently rely on weak economic data to help them stay lower (normally it would) because most of the weak economic data is being chalked up to unseasonably cold/snowy weather.
- (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).