September 5, 2014
Mortgage rates were lower out of the gate this morning after the weaker-than-expected jobs report fueled bond market gains. As bond prices rise, rates fall. But bonds--specifically Mortgage-Backed-Securities or MBS (which dictate mortgage rate pricing)--are constantly moving throughout the day while lenders only put out 1-3 rate sheets per day. This depends on volatility and on many days, there is only one rate sheet. Today was not one of those days for most lenders.
As the day progressed, bond markets weakened substantially. Eventually, we'd lost everything gained in the morning. Most lenders 'repriced' to higher rates at least once during the slide. Some of them are now in worse shape than they were last night, though others are still slightly better. 4.125% remains the most prevalently-quoted conforming 30yr rate for top tier borrowers.
This brings the week to a close with rates having moved higher every single day. While some of that could have to do with broader ebbs and flows that occur in the trading world around the end and beginning of the month, it's still potentially disconcerting. With yesterday's announcement from the European Central Bank and today's weak jobs numbers, we had 2 major events at the end of this week that more logically suggested lower rates. The fact that the underlying momentum was able to overwhelm these would-be allies suggests we remain cautious. These are the sorts of clues that can precede a sustained push to higher rates. Next week will let us know much more about whether or not that's happening.
Loan Originator Perspective
"You would think after the big miss on NFP that rates would move dramatically lower, but it appears investors are ignoring the data. Historically, August payrolls are revised higher on average by about 100,000 which seems to justify ignoring the miss. If you floated into today's data, i would continue to float over the weekend. The trend over the last couple months has been rates move higher at the beginning of the month then trend lower towards the end of the month." -Victor Burek, Open Mortgage
"MBS and treasuries not getting a larger push to the positive side after the dismal jobs report is slightly concerning. That being said, it's Friday and I'm of the opinion that floating over the weekend is the right call here. Even with more improvement in the markets, reprices, if any, would have been few and far between and the improvements would have been minimal. Not much on the calendar on Monday, so maybe the jobs numbers will get digested over the weekend or we could see further tensions in Russia/Ukraine which should lead to lower yields on Monday." -Steve Chizmadia, Loan Consultant, American Capital Home Loans
"So the Jobs Report disappoints, rates rally, and we lose momentum as the day goes on. My gut tells me the market is not convinced this weak report is a good measurement of the state of jobs unless we see further weakness moving forward and it feels like the market wants to move higher if given some impetus. I still recommend locking short term closings and any further significant weakness in the next week would make me want to think seriously about locking everything." -Hugh W. Page, Mortgage Banking Officer, Seacoast National Bank
Today's Best-Execution Rates
- 30YR FIXED - 4.125
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25%
- 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 are now lower year-over-year, but that's mostly due to rates' path higher in 2013. The current path in 2014 remains sideways, though it has recently approached (but not broken) the lows set in late May
- European markets continue to play a prominent role, 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. The most prevalent top tier rates haven't changed since mid May
- 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).