July 2, 2014
Mortgage rates moved higher today, once again at faster pace than most of the recent movement higher or lower. The weakness in mortgage markets owes itself partly to the way in which traders are positioning themselves in the new quarter. Today brought an added ingredient of stronger employment data.
This morning's ADP Employment report indicated a much higher rate of job growth than expected and higher than is currently forecast for tomorrow's more important 'Employment Situation' report. Stronger employment data tends to hurt rates. When it arrives during a market trend that's already favoring a moderate move higher in rate, things can change more quickly.
Case in point, the past 2 days of weakness are quickly bringing 4.25% back into the frame as a candidate for the most prevalently quoted conforming 30yr fixed rate. Many borrowers will still be quoted the same rate today as yesterday, with the weakness being seen in the form of higher closing costs. In terms of 'effective rate,' the increased closing costs equate to 0.04%.
This ebb and flow in the trading world was clearly behind today's bond market weakness (MBS are part of the bond market). When bond markets are weaker, prices are lower and rates move higher. In the context of recently tame movement, today's rise in rates was a bit more abrupt, accounting for an effective rate increase of 0.04%.
Loan Originator Perspective
"The time to lock your rate was really Monday of this week. While ADP Jobs is not necessarily an accurate barometer of where the Jobs Report will come in tomorrow, the big number we saw today contributed to a continued worsening in mortgage pricing. Anything in the data tomorrow that is supportive of this ADP report today will likely do us no good so locking today (if you haven't already) is probably the wise choice. Floating is only for the risk takers here." -Hugh W. Page, Sen. Mortgage Consultant, Capital Partners Mortgage
"Rates have suffered the last few trading sessions ahead of the release of the jobs report. That could limit how much rates rise if the number is strong, and make extra room for how much rates fall if the number is weak. At the moment it's still safer to lock if you are closing in a couple of weeks, but if you have more time and are ok with losing some ground in exchange for seeing how this plays out, then you should float into tomorrow. " -Manny Gomes, Branch Manager, Norcom Mortgage
"Tough couple days for interest rates. Today's losses can be attributed to a much better than expected ADP jobs report, but we get the much more important official Non Farms Payroll report tomorrow morning. Sure seems a better than expected jobs number is priced in now, but floating through tomorrow is risky. If I was in the process of securing a new mortgage, I would float into the morning....but again it is very risky to float, so float at your own peril." -Victor Burek, Open Mortgage
“Given how rates have moved up this week, there is no reason to think the trend won’t continue tomorrow. I would recommend locking your rate if you are closing within 30 days, but to also be prepared for higher rates if you continue to float. If rates back track then renegotiations to lower rates are possible.” -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc.
"If you're locking today or tomorrow, locking today is the best option. Tomorrow is the last day before a long 3 day weekend, and I don't expect rates to consumers to see any improvement regardless of NFP. If you can risk floating into next week, I'd consider doing so, though I would definitely be ready to lock, if necesary, tomorrow." -Brent Borcherding, www.brentborcherding.com
Today's Best-Execution Rates
- 30YR FIXED - 4.125-4.25%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.375%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- The hallmark of 2014 so far has been a disconcertingly narrow range in rates. Too many market participants bet on rates going higher in 2014, and markets have punished that imbalance with a paradoxical move lower.
- As of June, rates were officially lower year-over-year, but that's due to rates' path higher in 2013. The current path in 2014 remains sideways.
- European markets continue to play a nagging role in the background, generally helping rates in the US remain lower than they otherwise might be.
- From a wider point of view, we're in limbo, waiting for the first significant move away from the narrow range. A rally into late May stood a chance to act as this break, but rates have since returned to what were previously the lower limits of the 2014 range.
- As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.' Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy. It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).