February 7, 2014
Mortgage rates were finally lower today, but the drop was modest given that it was the product of a weak jobs report--typically a bigger market mover. Additionally, when viewed against the past three straight days of weakness, today only got us back to Wednesday's levels. The most prevalently quoted conforming 30yr fixed rate for the very best borrower scenarios (best-execution) remains at 4.375% for the most part though 4.25% and 4.5% are both fairly close. When adjusted for day to day changes in closing costs, rates fell an equivalent of 0.04% today.
Throughout January, rates were moving lower with purpose. This continued into early February to a point where we were left to consider whether this was a market-based correction that had run its course or potentially just the first phase in a bigger move lower.
Any time rates are approaching those sorts of "crossroads levels" ahead of a report like the Employment Situation, we can infer some indecision on the part of financial markets as well as the hope that the important report will provide guidance. In that regard this week has ended in somewhat of a frustrating fashion.
While the numbers were weaker, and while this did help rates improve a bit today, the movement didn't do anything to clear up the indecision. In other words, rates had been approaching a fork in the road and the jobs report did not clearly indicate which path has been chosen. When that happens, we move on to the next major potential dose of guidance. Fortunately, we don't have to wait long this time as the most likely event will be Janet Yellen's first congressional testimony next week. In terms of lock/float risk, ideally, we'd want to be seeing a stronger response to weak jobs data in order to perceive a higher probability that rates continue lower unassisted.
Loan Originator Perspectives
"Lender pricing isn't much better this morning despite the weak employment data and gains in MBS. With the employment data behind us now I think floating is the way to go. The employment data has been weakening as has some other data of late. Weaker economic data is good for mortgage rates." -Victor Burek, Open Mortgage
"Yesterday I said lock, and while there has been a small "token" of improvement, I think that was and still is the best piece of advice. We appear to be at the low end of the current range and we'll need significant data or equity market sell off to further our cause. On the other hand, we could start seeing a tick upward in rates, simply as a course of action with no data. Lock 'em up is still the best advice." -Brent Borcherding, Capital M Lending
"This is proof that the market is rigged. Maybe not, but I guess it will take 3 bad jobs reports in row for the reality to get traded. Weather is once again the excuse for low numbers. If this is the result of a bad number, then we would have gotten killed had numbers been on target and Dec revised higher. Lock while we're still near 3 month lows as any excuse for stocks to rebound is on the table and that hurts bonds." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc. NMLS # 107434
"January's NFP report disappointed today, which helped us recoup the past several days' losses. Pricing improved by around .25% for most loans. Not anticipating further huge gains soon, looks like rates are settling into the current range." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
"As much of the advice given over the week leading up to todays always important NFP report, many of us felt it would not be as important with the weather as a viable reason to point a finger if it was a poor number. We got just the poor number that usually leads to a large rally. The number helped cut into the losses from Wednesday or Thursday, but it still wasn't enough for a big rally or a move lower in best execution rates. I still recommend locking at application moving forward as it feels it will take something very big to push lower lows in rates and we are already at or near the lowest rates seen in months." -Steve Chizmadia, Mortgage Consultant MLO#244902, American Capital Home Loans
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).