March 4, 2015
Mortgage rates paused today after moving swiftly higher over the past two days. Markets reacted to two important pieces of data this morning, ADP Employment and the ISM Services Index. Both of these are regarded as relevant anecdotes for the even more important Nonfarm Payrolls data coming up at the end of the week, but in today's case, they generally offset each other. Weaker ADP numbers helped bond markets improve this morning and stronger ISM data (particularly the employment component) took things back in the other direction.
Lenders were mostly already priced defensively enough to absorb the bond market weakness (meaning rate sheets weren't much improved from yesterday, despite the stronger trading levels in play earlier in the morning). In fact, the average lender was higher in rate than yesterday for most of the morning, but many repriced positively in the afternoon as bond markets held their ground. General strength in broader bond markets typically connotes strength in the mortgage-backed-securities (MBS) that most directly affect loan pricing. Stronger MBS = lower rates.
Not only do we have Friday's big jobs report, but tomorrow has events that are plenty capable of causing volatility as well. Chief among these is the European Central Bank press conference in the morning. If it ends up having a material effect on rates, it would happen before most lenders release their first rate sheet of the day. As such, if you don't lock today, you're at the mercy of the market's reaction to tomorrow's data.
Loan Originator Perspective
"At this point you should take your risk tolerance into account when deciding to float or lock. The markets at this point are waiting on the payroll report on Friday. If you think the number of jobs and wage growth will be under consensus, then floating will pay off. If you think the jobs report will be as expected or better, rates will probably move higher. So float at your own risk. " -Victor Burek, Open Mortgage
"Mortgage Rates remained the same, again, today and the next 2 days loom large as directional indicators for mortgages moving forward. As I've stated all week, and I still believe today, locking is the best policy. We are sitting at a long term pivot point, and while rates always have the potential to go up or down, the risk/reward is not equal. If support holds, we could see some small improvement over the coming days, but if support breaks, then we're likely to see rates rise rapidly." -Brent Borcherding, brentborcherding.com
"Rate markets treaded water today, on the cusp of two important days of data. Tomorrow's weekly jobless claims report is the precursor to Friday's February monthly jobs situation report. I'm hoping that, given current rates, that a strong report is priced into the markets already. A blockbuster report could certainly hurt rates. I'd tell borrowers happy with their current pricing to lock 'em up and sleep soundly. Floating this time of the month is inherently risky." -Ted Rood, Senior Originator
"Raters were for the most part flat today. Considering the equity sell off from the last couple of days I would have expected rates to improve and that simply has not happened. Bond traders appear to be waiting for Fridays NFP before deciding to make any move. We may be setting up for a reversal and lower rates should the jobs report miss expectations. If you can tolerate the risk floating can pay off. If you can not tolerate RISK lock in. " -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.875
- FHA/VA - 3.5
- 15 YEAR FIXED - 3.125
- 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).