April 1, 2014
Mortgage rates were relatively unchanged today, after moving higher during the past two sessions. The stability is somewhat counterintuitive as bond markets are slightly weaker. Typically, bond market weakness coincides with higher rates, but in the current case, yesterday afternoon saw moderate strength that came too late in the day to make it on to lenders' rate sheets. As such, we had a bit of a head start today and lenders were able to absorb the market weakness while keeping rate sheets essentially unchanged.
Unfortunately, that also means that rates remain near the highest levels in almost 3 months. The last instance of meaningfully higher rates was before the January 10th Employment Situation report when the average top tier rate had been 4.625%. Today's most prevalently quoted conforming 30yr rate for top-tier scenarios (best-execution) remains at 4.5%, with a few lenders close to 4.625%.
Despite the nearness to multi-month highs, the overall rate range has been exceptionally narrow for most of 2014. The highest highs have only barely crested 4.5% while the lowest lows arguably didn't get below 4.25% for most. These episodes of flatness happen from time to time in the course of interest rate history, but examples like this are rare. The last time rates were this flat for this long was in 2009.
Conventional wisdom in financial markets holds that such narrowness or consolidation often precedes a large, fast-paced move in either direction. Indeed, this does tend to be the case more often than not, but from a fundamental standpoint, there are valid challenges this time. Specifically, there are compelling barriers against a move significantly lower in rates but also a questionable ability of the fragile economic recovery to sustain significantly higher rates. If volatility is on the horizon, it may be short-lived, but most likely to be seen in the next three days leading up Friday's Employment Situation Report.
Loan Originator Perspectives
"Tomorrow we get the first peek at job creation with the release of the ADP payrolls report and of course on Friday we get the official government report. It is highly risky to float through these reports. If you feel the data will show less jobs created then estimated, rates will rally. But if they show more jobs created then expected, rates will get worse. So floating could pay off, but it could also cost you...float at your own risk." -Victor Burek, Open Mortgage
"Rates have been inching higher that last couple of days as the equity markets are challenging all time highs. I believe bonds may be able to recover some of these losses should Fridays jobs report meet or miss expectations. This is however to dangerous a game to play if your closing in a few weeks, but if you have time on your side floating may work in your favor. " -Manny Gomes, Branch Manager, Norcom Mortgage
"Locking is the smart move and hoping for lower rates to renegotiate down to is nothing more than that, a hope. Last week was the best pricing we'll see until, at least, Friday when NFP takes us in a new direction. So we wait." - Brent Borcherding, Capital M Lending
"Another day of rates rising slightly as March's NFP (aka Employment Situation Report) looms for Friday. As noted in "The Day Ahead" on MND, it takes a lot to motivate markets in the days preceding big data events. Current momentum is towards higher rates, will take a shift to see any significant improvements!" -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.5%
- FHA/VA - 4.00%
- 15 YEAR FIXED - 3.5%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- The Fed has stayed the course on their $10bln per meeting reduction in bond buying, though markets have handled it relatively calmly compared to the days of "coming to terms with tapering" in 2013.
- Rates fell significantly in January, leveled-off in February and took choppy steps higher in March
- Some mitigating factors had kept rates from moving too far out of a narrow range, including the uncertain impact of weather on recent economic data as well as geopolitical risk surrounding Ukraine
- 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.
- Barring surprises, even within the very narrow trend from January through March, we've seen a slight bias toward higher rates. It will take economic or geopolitical surprises to push back against that momentum.
- (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).