February 6, 2014
Mortgage rates were higher for a third straight day, substantially weakening a recent run to the lowest levels in nearly 3 months that ended on Monday. Each of the past 3 days hasn't been severe in and of itself, but taken together, they erase most of the improvement seen on Friday and Monday (which were both strong days). We're now back to 4.375% being the most prevalently quoted conforming 30yr fixed rate for the very best borrower scenarios(best-execution). Scattered offerings of 4.25% were on the table yesterday, and dominated the landscape on Monday. When adjusted for day to day changes in closing costs, rates rose an equivalent of 0.05% today, bringing the 3 day total to 0.10%.
As is always the case on the Thursday afternoon before the official employment data, floating a mortgage rate that could otherwise be locked is highly risky. That's because this monthly report--The Employment Situation--is by far and away the most important piece of economic data available each month. Nothing else has as much power to cause movement in interest rates. The risk of rates moving quickly higher usually makes it a good idea to lock (if possible) before this report, but the last one was a great example of how taking the risk to float could pay off.
That said, part of the payoff had to do with financial markets repositioning themselves in the first month of a new year. A rapid cool-down in stocks and emerging markets helped make it an easy decision for rates to take a similar break after moving exclusively higher over the past two months.
Rates did such a good job correcting that we now face the possibility of that correction being over already. I've heard arguments on both sides of this topic. One side feels that rates need to correct further before getting back to the longer-term uptrend while the other side thinks the correction has already gone too far. Based on the shifting popularity of those viewpoints, I don't think either one of them is stronger than a surprising result in tomorrow's data. In other words, if the report is strong, it could indeed create lasting momentum higher in rate.
Conversely, an exceptionally weak report could do more than normal to help rates in this case, because it would stand together with last month's exceptionally weak report, thus casting significant doubt on the strength of the supposed recovery. The conclusion is that this one is a bigger deal than most, unless it's very close to forecast levels. The only other wild card is the chance that the Bureau of Labor Statistics (the entity responsible for this data), puts a significant amount of blame on the weather.
Loan Originator Perspectives
"Hopefully you followed the advice of the last few days and locked. A weaker open resulted in worse pricing this morning. Now the markets await the payrolls data tomorrow. Despite the worse pricing, I would still lock today if within 30 days of closing. Tomorrow is too risky to float through." -Victor Burek, Open Mortgage
"Simple--Lock 'em up. Tomorrow's NFP has the opportunity to move rates in either direction, of course, but I believe a worse than expected number doesn't give us a lot of improvement where a better than expected number worsens pricing drastically." -Brent Borcherding, Capital M Lending
"I'm hoping for another stinker report like Dec, but I'm not holding my breath that it's going to happen. Therefore the smart money is on locking as we may get spanked pretty good if the estimate is close to actual or higher. If Dec is revised higher then it's a certainty in my opinion. I honestly can't think of any reason to float period. Any dip in rates is likely to be minimal while a jump will be sizable like it always is. " -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).