December 4, 2015
Mortgage rates fought back today, following their biggest single-day jump in more than 2 years on Thursday. Today's significant event was the Employment Situation report, which actually turned out to be not too significant for the bond markets that underlie mortgage rate movement. Given that the report was slightly stronger than expected, and that stronger economic data tends to push rates higher, we can conclude that today's resilience was mostly a factor of yesterday's weakness being overdone.
It's important to understand that today could have gone either way. In fact, history suggests that big, unexpected spikes like yesterday's are more typically followed by several successive days of movement in the same direction. There are contrary examples of course, but far fewer.
In terms of bond market trading levels that ultimately dictate mortgage rates, we earned back almost half of yesterday's losses. In terms of mortgage rates themselves, the results weren't quite as good. This is normal behavior for lenders on days that bounce back after big losses. If bond markets were to hold steady here, lenders would have some room to continue improving today's relatively cautious move back toward lower rates. Even with today's move, most of the lenders that had moved up to quoting 4.125% on a conventional 30yr fixed are now back down 4.0%.
Loan Originator Perspective
"It sure appears like yesterday's sell off was too much too quick. Despite a better than expected jobs report, bonds have managed to rally regaining about half of what was lost yesterday. Most lenders did open with weaker rate sheets as most of the gains came post rate sheet time. Some lenders have repriced for the better but as is pretty common they are being stingy with passing along the gains. I would definitely float over the weekend and evaluate pricing on Monday morning." -Victor Burek, Churchill Mortgage
"The highly anticipated jobs report came out this morning and slight beat expectations causing bonds to sell off. Bones were able to mount a rally at the same level where they mounted a mini rally yesterday. This could be the sign of a bottom for bonds and can bode well for rates. I would float over the weekend and look for confirmation Monday." -Manny Gomes, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.0%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- 2015 has been largely about rates rising unevenly from a long-term low brought about by the onset of quantitative easing in Europe. In May and June, the Fed increasingly began telegraphing a 2015 rate hike. At that point, the "rising rate environment" seemed like a sure thing, but the Fed's plans hit several snags. Economic data began deteriorating at home and abroad, causing markets to rethink the higher rate rhetoric. Mortgage rates hit 6 month lows at the end of October, just as the Fed surprisingly changed it's policy statement to specifically suggest December as a rate hike possibility (something they haven't done since 1999).
- In the bigger picture, rates had been at a crossroads, trying to determine if they would move back to 2015 highs or if the late summer swoon was merely the first wave of a longer campaign.
- While there is still plenty of room to be concerned about increasingly weak global economic growth, that's not a solid enough reason to float in this environment. With the Fed almost certainly on track for a December rate hike, there is much more risk that rates move quickly higher vs quickly lower. The big picture global malaise can serve as the basis for long term hope, but in the short term, assume upward pressure on rates when formulating your strategy.
- 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, conventional 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).