April 30, 2014
Mortgage rates fell at a solid pace today following a reading on 1st Quarter GDP that was much weaker than expected. Downbeat economic data tends to benefit bond prices, including the mortgage-backed-securities (MBS) that most directly influence rates. When prices rise, rates fall. The good times kept rolling in the afternoon when the Fed Announcement arrived essentially unchanged from the previous version. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains at 4.375% in most cases, but the costs associated with that rate fell back to mid-month levels. That drop in costs translates to approximately 0.05% in rate effectively.
Today was an important one to get through for mortgage rates as we work our way toward Friday's even more important data. The fact that the Fed didn't change much in their policy statement is not a surprise, but it is somewhat of a surprise to see just how little markets reacted to it. Most of the day's activity was concentrated on the morning data, which only adds weight to Friday's Employment Situation Report.
This morning's low GDP numbers can be at least be discussed in the context of a weather-related slowdown, but it's important to keep in mind that those numbers include the cold/snowy months whereas Friday's jobs numbers are for the month of April. If they're stronger than expected, or even in line with expectations, rates will have ample justification to undo today's gains.
Loan Originator Perspectives
"So much for rates getting worse as the jobs report nears. We had mixed data this morning, but it appears the much weaker than expected GDP print is drawing the most attention. As of 3pm eastern, some lenders have repriced for the better but more should be on the way. Today's gains seem unwarranted, so I favor locking. Wait until the end of day to give your lender time to reprice. " -Victor Burek, Open Mortgage
"LOCK--Take these unexpected gains and run, as we're currently at the low end of the range. If Friday's NFP is a stinker and it adds to the rally today on a bad GDP, then we'll break through the bottom of the range and there will be renegotiation/float down opportunities between now and your close. If NFP is at expectation or better, this is the best pricing you'll see for some time and you'll be glad you locked. I think, as a consumer, you're in a win-win." -Brent Borcherding, www.brentborcherding.com.
"Look at today's improvements in pricing as a gift and take advantage and lock in and protect these rates. Still in a high risk environment until the Employment Report comes out on Friday. If you're a risk taker not in a position where higher rates will hurt your chances for qualifying, and your closing date is further out on the time horizon (near 60 days ) rolling the dice may yield benefits but it's clearly a risky call." -Hugh W. Page, Sen. Mortgage Consultant, M.B.A. Capital Partners Mortgage
"Interest rates are improving even with positive economic news. Though GDP did disappoint, the weather factor is getting the nod for that number. I would still lock before Friday as there is just too much risk of a reversal. Floating to tomorrow is probably safe, but be ready to lock soon if warranted." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
"ADP with a slight beat this morning was overshadowed by a much worse than expected GDP reading. We've had a nice rally in the afternoon hours following an as expected release on the FOMC rate decision and the prepared comments that followed. With the current market activity I wouldn't lock at the moment, but if your lender were to pass along an improvement this afternoon, which is less likely on NFP week as they are more likely to hedge leading into Friday, I would take the improvement and lock today as the risk of floating into Fridays employment report outweigh the potential rewards in my opinion. " -Steve Chizmadia, Mortgage Consultant, American Capital Home Loans
"The Fed decision did not consist of any surprises. QE will be reduced by another 10 billion per month. With the Lack of pre-pays and the slow down in originations I do not see this impacting rates to much. GDP was very weak and this helped the bond market today. All eyes are now on Fridays Job Report. Lock if you get a better rate sheet this afternoon but float into tomorrow if you don't." -Manny Gomes, Branch Manager, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED -4.375
- 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).