February 6, 2015
Mortgage rates shot higher at their fastest pace in nearly a year today following this morning's employment data. This also leaves rates at their highest levels since early January--something that might come as a surprise if you happened to read anything about rates yesterday. That's because Freddie Mac puts out its widely-cited weekly mortgage rate survey every Thursday. Almost every major news organization uses that report to cover mortgage rates for the week, and thus there is a glut of headlines between 10 and 11am on Thursday morning that all sound fairly similar.
Mortgage rates fall to 20-month low, Freddie Mac says
Freddie Mac: Mortgage rates slip back to 21-month low
Freddie Mac: Mortgage Rates Ticked Back Down Again
FREDDIE MAC: Fixed Mortgage Rates Reverse Course, Move ...
Average US rate on 30-year mortgage falls to 3.59 pct.
Mortgage rates slump on weaker than expected economic reports
And of course, as you've probably deduced by now, all those headlines are now wrong. It's not that the underlying data was bad. In fact, it's quite good and it lines up quite well with Mortgage News Daily's superior daily 30yr levels (see the chart on this page). It's just that the Freddie data is unavoidably stale by the time it gets to you. Their survey is open for responses from Sunday through Wednesday and is then reported on Thursday.
That's not a problem when there's not much market movement, or when markets are improving, but in the current case, rates have been deteriorating all week. The biggest discrepancies occur when there are big movements on Thursday or Friday, as was the case today. It means that far from being at a 20 or 21-month low, rates are more appropriately described as being at a 27 day high.
The differences between today and yesterday are especially stark. Whereas a conventional 30yr fixed was available at 3.625% at almost any lender yesterday, it's almost non-existent today. 3.75% has taken over as a far more prevalent quote for top tier borrower and 3.5% is basically a memory for all but those who want to aggressively buy-down their rate (i.e. pay more upfront cost for a lower rate).
Just so we're clear, these numbers are based on actual lender rate sheets that are 'live' right this very moment (the afternoon of Friday, Feb 6th). As always, things can change on the next business day. While the long term trends in rates are far from defeated, this is now the most serious threat that trend has seen in several months. It's risky to bet on rates bouncing back lower until they actually show some desire to do so.
Loan Originator Perspective
"A very strong Jobs Report this morning kicked us in the gut today and rates worsened sharply. It could have been worse, however, given the nature of this stellar jobs report. No telling if this is a reversal that has some legs or not so caution is certainly in order here. Personally, I would take risk off the table right now if you're closing is within 30 days. If your closing is beyond 30 days you may want to cautiously wait for Monday to see what it brings but be ready to pull the trigger if the trend is clearly still worse. " -Hugh W. Page, Mortgage Banker, Seacoast Bank
"Even on a day like this we can sometimes find a silver lining. Today's silver lining is we're still under 2.04 on the 10 year treasury and still in the down trend. While the short term picture changed a bit today, the long term story is still in tact. So the rate/lock decision falls back to what's your risk tolerance if you hadn't spoken to your loan officer and locked up prior to today's report. If you want to float over the weekend as the damage today appears to be done watch for early signs Monday on which way the market takes us, but have the conversation with your loan officer so they can be close to the lock trigger if we're moving higher." -Jeff Anderson, Loan Officer, Salem Five Mortgage, LLC
"Consumers who floated through this week and into today's Jobs Report were hopefully well prepared for the increase in volatility and risk. Both arrived in abundance today. At this point, keep a close eye on rates next week to see if the sell-off continues to gain momentum. Stay in close contact with your LO as intraday price changes have offered some of the best locking opportunities. " -Justin Dudek, Mortgage Professional, Supreme Lending
"Rates took a shot to the chin today as the strong January jobs report (and revisions to prior months) raised Fed rate hike expectations. We lost over a 1/2% in loan pricing, and broke through some previously "strong" resistance. It will take significant data/drama to stem this tide of rising rates. My clients are all locked. Floating borrowers need to have a discussion with their loan officers on locking now to minimize losses, or throwing the dice and hoping for better rates next week. Personally, I'm not banking on it." -Ted Rood, Senior Originator
"This week has been a perfect illustration of why locking your rate at application or as soon as possible is a prudent idea. Floating in hopes of small gains is risky when rates move the way they have this week. It’s possible that we could gain back bond losses next week, but that isn’t assured." -Michael Owens, Vice President of Mortgage Lending, Guaranteed Rate Inc.
Today's Best-Execution Rates
- 30YR FIXED - 3.75
- FHA/VA - 3.25
- 15 YEAR FIXED - 3.00
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- 2015 began with a strong move to the lowest rates seen since May 2013. The catalyst has been and continues to be Europe.
- European bond yields trended constantly lower in 2014, thus playing a prominent role in keeping US rates lower than they otherwise might be. Many feel that Europe will continue to slide until their central bank engages in US-style quantitative easing. Some see this happening in early 2015. In any event, we're looking for a turn in Europe, first and foremost, before worrying about the longer-term trend in bond markets being at serious risk of reversing.
- It's impossible to know when Europe will turn a corner, and even then it's only the sort of thing we'll be able to observe in hindsight. That means every head-fake toward higher rates runs the risk of developing into a longer term rise, even if those risks vary greatly in terms of probability. Clients with longer term time horizons and who otherwise don't mind losing some ground in exchange for the chance at locking even lower rates are the only ones who should float. Clients who must close by a certain date or who can't afford to lose any ground on rates should generally be locking even though the longer term trend has been in their favor for over a year now.
- 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).