April 4, 2014
Mortgage rates were significantly lower today, erasing a full week's worth of time spent moving higher in fits and starts. The main event was this morning's release of the Employment Situation Report. While the numbers were actually pretty decent, market participants were prepared for something even stronger--a fact that's evident in the recent willingness to push rates against their recent highs leading up to today.
In that sense, a 'merely good' report on jobs wasn't strong enough to justify any additional weakness and rate sheets came out much stronger. When adjusted for day to day changes in closing costs, rates were an equivalent of 0.07% lower today. The most prevalently quoted conforming 30yr rate for top-tier scenarios (best-execution) is back down to 4.5 after challenging and 4.625% over the past 2 days.
Today's story doesn't begin and end with the Jobs report. Despite the massive amount of focus it justifiably receives, it only accounted for the half of today's gains in and of itself. The other half came courtesy of an event that didn't get much air time in domestic channels, partly because it was European, and mostly because everyone assumed it was ongoing reaction to the jobs data.
The event in question was simply a report that the European central bank had begun modeling a €1 trillion QE program. Just like the promise of QE in the US, the promise of big, guaranteed bond-buying generally pushes rates much lower. Of course, it's just war games at this point, otherwise the results would be more evident, but it was clearly enough to account for half of today's improvement.
What does that mean for domestic rates next week and beyond? It might mean something, but it's too soon to tell, and pointless to guess until it materializes. Today's improvements didn't materially alter the landscape of mortgage rates, which has been ever-so-gently sloped toward higher rates in 2014. It did let us know that markets are needing to see a lot of justification before pushing rates higher too quickly, but they may need even more before pushing rates much lower. Until and unless the average mortgage rate breaks back below 4.5, it's at risk of becoming the next stepping stone on the way higher.
Loan Originator Perspectives
"Seems like we bounced off the high end of the range, and are headed lower in the short term. If we just hold these gains through the weekend, I'd expect better pricing to consumers on Monday." - Brent Borcherding, Capital M Lending
"Looks like bonds rallied today due to markets pricing in jobs numbers being much better than printed and yields came down in a small correction. Proposed QE programs in Europe could also have a positive effect on the U.S. bond market which may be helping as well. Locking in the gains seen today is safe, but floating could be productive into next week." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
"It appears the markets were pricing in a much better than expected jobs report. The number of jobs created came in just lower then expected which you would think would result in rather boring sideways trade all day. That didn't happen as rates rallied following the release and rallied further on headlines out of the EU. The rate sheets I have seen today do not reflect anywhere near the gains that MBS price justify. If you were a big enough risk taker to float through this mornings data, I would continue floating over the weekend." -Victor Burek, Open Mortgage
"Rates dropped to a surprising extent today, given a "Goldilock's" jobs report (not too hot, not too cold) that was near expectations. The gains' catalyst was the European Central Bank's announcement of new economic stimulus. We're now trending towards the lower end of recent range, the wild card is whether our improvement will last. Given the extent of the ECB's easing, very possible they will." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage
"As I suspected, the bond market had already priced in a strong jobs report. The released numbers, while being close to expectations did attract buyers which gave us a nice early boost in pricing. Things get more difficult to predict going forward. The only thing I can count on is volatility to be much higher than normal in the coming week. If you have the stomach you can float for equity markets did in fact sell off today after hitting new all time highs. More selling is possible and this may help the bond markets but locking towards the end of the day is not a bad idea especially if you get a mid day re-price." -Manny Gomes, Branch Manager, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.5%
- 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).