February 4, 2014
Mortgage rates were slightly higher today as financial markets took a break from recent volatility. With the exception of yesterday, today's rates remain the lowest seen since early November, and most borrowers will be quoted the same rate today as yesterday. That said, the closing costs could be slightly higher or the lender credit slightly lower. 4.25% remains the most prevalently quoted conforming 30yr fixed rate for the very best borrower scenarios(best-execution) with 4.375% not far behind. When adjusted for day to day changes in closing costs, rates rose an equivalent of 0.03% today. They'd fallen .13% in the previous two days.
One of the most important factors driving interest rates lower recently has been weakness in equities markets (stocks). It's very important to understand that this relationship between rates and stocks is definitely not always in place. In fact, on many occasions over the past 5 years, rates were rising when stocks were rising. The nature of this relationship tends to move in phases and right now, we're still clearly in the opposite phase where weaker stocks benefit rates.
In that sense, the story of today's modestly higher interest rates is as much about the modest bounce back in stocks as anything. There was very little by way of interesting data on the calendar, though that is far from the case tomorrow. As such, today provided a good opportunity for markets to slow down and collect themselves before receiving the next potentially inspiring headlines. These happen gradually over the next three days, culminating with the big jobs report on Friday (Employment Situation). The risk for rates is that the employment data is decent. If that's the case, it will go a long way toward putting a floor under the impressive move lower seen so far in 2014.
Loan Originator Perspectives
"The next few days will set the direction for mortgage rates in the near term. If employment data is better, rates will rise, if worse, they will hold steady or fall. With the recent improvement in mortgage rates, I see no reason to float through the next few days. Risk outweighs reward, Lock in the gains." -Victor Burek, Open Mortgage
"Those floating over the last week or two have been rewarded with much improved pricing, even with the small losses for today. This may be in the form of a slightly lower note rate or a larger lender credit. Friday could easily extend those gains or wipe them out altogether and we all know secondary is faster to pull back the improvements than they are to pass along more. My opinion is to make the safe call and go ahead and lock in your loan if you are closing in the next 30 days. " -Steve Chizmadia, Mortgage Advisor with American Capital Home Loans
"Lots of fairly bad reports coming out lately. The stock markets drop is leading to bond and MBS market gains. Tomorrow is a peek at what's to come on Friday. Even if the ADP and NFP do not always align, until Friday it could push rates around a little. If Friday disappoints then we could be bumping into 4% or lower. I won't be upset if this happens even if 401ks and IRAs do tank a little. Locking is always a good call before NFP Fridays, but it's possibly too early in the week to tell if that is my call this time around." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc. NMLS # 107434
Today's Best-Execution Rates
- 30YR FIXED - 4.25% -4.375%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25-3.375%
- 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.
- With that in mind, further interest rate resilience in the face of tapering only looks limited by ability of emerging markets and equities to continue being weak.
- (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).