April 2, 2014
Mortgage rates moved higher again today, this time taking them definitively past any of the recent highs in March. In fact, to find rate sheets in any worse shape on average, you'd have to go back to January 9th, the day before a downbeat Employment Situation report helped fuel the rate recovery through the rest of the month.
Our current situation is not all that dissimilar. Once again, a potentially pivotal Employment report approaches this Friday with rates ready to move higher or lower at a quicker-than-normal pace depending on the tenor of the data. It's not quite as dire a situation as early 2014 when rates were at the highest levels in more than 2 years, but neither is it pleasant to have rates at their highest levels in more than 2 months.
Today's weakness was partially a product of decent economic data this morning, but just as much to do with simple ebbs and flows that characterize the non-linear movements in financial markets. These have been fairly regular and occurring in a fairly narrow range throughout March and into April. Rates moved to 2-week lows at the end of the month and quickly back above 2-week highs into the new month. It's not uncommon for markets to push the limits of trading ranges heading in to important economic data.
When the trading range of Mortgage-Backed-Securities (MBS) is stretched to its weakest recent limits, rates rise. Adjusted for day to day changes in closing costs, rates were an equivalent of 0.03% higher today. The most prevalently quoted conforming 30yr rate for top-tier scenarios (best-execution) is between 4.5 and 4.625% at these levels. Keep in mind that 4.5% isn't necessarily better than 4.625%. It depends on the closing costs associated with the rate. In almost no case will one lender be a full .125% better in rate than another, but in many cases, some lenders may offer 4.5% for an acceptable bump up in closing costs compared to those charged for 4.625%.
The lock/float outlook is straightforward at the moment. If you choose to float, you're rolling the dice for an exceptionally weak jobs report on Friday. There's not much point to floating today with the intention of locking tomorrow. Friday is the main event.
Loan Originator Perspectives
"The strategy of locking each day for the last 4 business days has held to be true, as each day pricing has gotten a worse. My gut says we're selling off enough that the number on Friday would have to be very strong for selling to continue. Unfortunately, after the last several months and some incoming forecasts that whopper very may be a reality. Too much risk in floating, LOCK and if the tide turns in our favor, look to renegotiate later." - Brent Borcherding, Capital M Lending
Today's Best-Execution Rates
- 30YR FIXED - 4.5%-4.625%
- FHA/VA - 4.00%-4.25%
- 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).