March 7, 2014
Mortgage rates rose sharply for the third time this week, bringing them to levels not seen since January 15th. Today's move followed a stronger-than-expected Employment Situation report. This is the most significant economic report each month and when it's strong, rates tend to suffer. Today was no exception as job creation moved back in line with recent averages, defying the expectation that the historically harsh winter weather would make for downbeat data.
Moreover, the report still managed to offer a fairly profound commentary on the effects of winter weather as more than 6 million workers reported missing work last month due to weather. Compared to an average of 70k workers each February who miss a complete week of work due to the weather, today's data showed far more of an effect with 120k workers missing a full week. Had the numbers been more in line with the 70k average, it would have made for an even stronger read on job creation.
Bond markets reacted accordingly. MBS, the "mortgage-backed-securities" that most directly affect mortgage rates, fell immediately to their lowest levels of the week. They managed to improve slightly throughout the course of the day, but only a few lenders released improved rate sheets mid-day. The net effect is a firm move to 4.5% as the most prevalently quoted conforming 30yr Fixed rate for the best-qualified borrowers (best-execution). When adjusted for day-to-day changes in closing costs, rates moved higher by an equivalent of 0.05% today, making for a .20% move on the week--the worst since August.
Loan Originator Perspectives
"We lost a lot in pricing this week, and after a better than expect NFP we didn't see rates rise as much as they easily could have or as we might have expected. To me, that's an opportunity to float over the weekend and see if we start seeing a little improvement. There is no denying the continued bias towards higher rates, but Monday is an opportunity to see if we get some short term improvement." -Brent Borcherding, Capital M Lending
"Pretty big beat with the employment report this morning has driven rates higher. Since lenders issued rate sheets this morning, rates are coming back some. Hopefully you followed the advice of many to lock up before this report. If you didn't, I would float over the weekend. The damage has been done now and of 2pm eastern, we have already had a couple lenders improve pricing as MBS have moved off the lows the set immediately following this mornings data." -Victor Burek, Open Mortgage
"At least it's Friday. Better than expected jobs number leads to worse rates. Nothing can push rates down these days and this report could be the first step towards a 5% base case by summer or sooner. Probably sooner rather than later if the trend continues. So locking asap is my recommendation going forward. Floating has left my vocabulary." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc NMLS # 107434.
"Rate sheets were worse today as the stronger than expected jobs report was released . Bonds however were able to recover and rate sheets on Monday could look better than today's. Now that the biggest news item of the month is behind those who did not lock earlier in the week may be best served floating into the new week." -Manny Gomes, Branch Manager, Norcom Mortgage
"If you're a regular reader, you've heard us discuss NFP Fridays' impact on rates, and today's report illustrates why. It beat market's expectations (potentially indicating a healing recovery), and rates rose accordingly. It will take escalating Ukraine Drama or dismal economic data to change market sentiment. Until then, best course is locking early, unless you're prepared to accept higher costs/rates when you do lock." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.5%
- FHA/VA - 4.00%
- 15 YEAR FIXED - 3.375%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- Rates moved gradually higher into the end of 2013 and reversed course with a nice move lower in January 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.
- The Fed has stayed the course on their $10bln per meeting reduction in bond buying, though 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. That bounce has been as low as rates have gone so far this year. Now we're tentatively waiting for the next move.
- Because of the unseasonably cold/snowy weather across much of the country, market participants are hesitant to stray too far from the narrow range carved out during February (because it clouds the validity of the economic data).
- As soon as investors can have more confidence that the incoming data is an accurate representation of economic conditions, we should see more willingness for rates to react accordingly, with weaker data helping keep rates lower and stronger data pushing them back toward January's highs.
- (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).