May 1, 2014
Mortgage rates fell at the fastest pace in over a month today bringing them to their lowest levels since early February. The motivation for a move of this size isn't readily apparent, but tomorrow's Employment Situation Report is likely a factor. The underlying reasons for that are complex, but the gist of it can be explained with an analogy.
The financial market participants that trade the securities that end up affecting mortgage rates are like attendees at a sporting event. They may be out of their seats, moving around the stadium, getting a drink or what have you in the time leading up to the start of the game, but there's some sense of urgency to take one's seat and pay attention to the opening pitch, kick-off, jump-ball, etc...
In this metaphorical stadium, there are no assigned seats either, so there can be jockeying for position right at the start of the game and the moments leading up to it. The same is true for the jockeying of trading positions in financial markets. Simply put, everyone is trying to find their best seat before the game starts--their best balance of trading positions before the big employment data.
This frequently leads to the sort of faster-paced movement we're seeing in bond markets today. Unfortunately, that's tended to go against us on most instances of the big jobs report, but this time, it's been in our favor. The important thing to understand about it is that it's NOT necessarily indicative of where rates want to go tomorrow. It just happens to be the easiest spot from which to approach and digest the first play of the big game. With no assigned seats in this stadium, if that play moves to the other end of the stadium, traders will follow in an even more frantic manner.
What does that mean for you? Essentially, "lock if you got em." It could be the case that the jobs data is much weaker than expected and rates continue to improve. But the fact remains that we have the best rates in 3 months today and a report tomorrow that is more than capable of causing this welcome move lower to turn around and head higher. To be clear, tomorrow is ultimately all about how the jobs report comes in, but from a risk/reward standpoint, there are few clearer locking opportunities. In fact the riskiest aspect of locking today is that it seems like such an obvious choice.
The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) moved down to 4.25% in most cases, but 4.375% is still close.
Loan Originator Perspectives
"So much for rates worsening each day on the week of non farm payrolls. Rates rallied again this morning on mixed economic data. The rally of the last 2 days seems unwarranted and could quickly unwind tomorrow when we get the jobs data at 8:30am. Today's pricing is about the best we have seen this year. If you are closing within the next 30 days, I would strongly recommend you lock today as rates have much more room to rise then fall. Take the gains on today's rate sheets and don't look back." -Victor Burek, Open Mortgage
"LOCK--We're at the low end of the range we've been in for the last 3 months. I'm hopeful we'll break lower and we'll see new lows in rates for the year, but you have to play the odds and the odds are we move higher within the range with tomorrow's report. As always, if rates do move lower...look to renegotiate/float down, but for now take the best rates we've seen in 3 months." -Brent Borcherding, www.brentborcherding.com.
"Rates have been in a sideways range since the beginning of February. With a nice improvement this week bringing us back down to the floor of that range, and a high risk event tomorrow in the monthly Jobs Report, the prudent move now is to protect this improvement and lock in these rates. Nothing out there suggests we will break even lower and recent history seems to imply a likely bounce higher at some point soon." -Hugh W. Page, Sen. Mortgage Consultant, M.B.A. Capital Partners Mortgage
"Remarkable as it seems, rates dropped today on NFP eve. Lenders typically price defensively as major data like the jobs report approach, so the fact we rallied COULD signal a shift towards better rates. We're approaching the best pricing of the year, now borrowers have to decide whether to lock current pricing or hope it continues to improve. " -Ted Rood, Senior Mortgage Planner, tedroodteam.com
"Floating into the Jobs Report is always a gamble. Mortgage bonds have enjoyed a nice rally this week and locking in to protect those gains is the prudent thing to do. That being said the technical picture for bonds suggest we can see lower rates down the road. If you have time on your side and can stomach volatility floating may work in your favor but if time is not on your side Lock into today's pricing. " -Manny Gomes, Branch Manager, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED -4.25-4.375
- FHA/VA - 3.75-4.0%
- 15 YEAR FIXED - 3.375-3.5%
- 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, they've since settled into a flat range mostly consisting of 4.375 and 4.5%, but with occasional forays to 4.25 and 4.625%
- The uncertain impact on the economy from the colder-than-normal winter weather as well as geopolitical risk surrounding Ukraine helped the range persist.
- While the bias had been generally toward higher rates, it reversed course in April and rates returned to the lower end of the range by May 1st. As the "weather effects" fall out of the spotlight, market participants are seeing a bit more organic weakness in the economy than they'd expected. The focus is returning to economic data to determine where we go from here.
- (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).