March 6, 2015
Mortgage rates were more or less obliterated today. Of course, everything's relative, so the obliteration is only relative to the average day of rate movement. In that regard, today's movement was about as sharp as it gets apart from the truly epic adjustments like those seen in the mid-2013 taper tantrum. But compared to the long-term range of mortgage rates through the years, we're still very near the lower bound.
I've always wondered though, what good does it do us to know we're RELATIVELY low on the spectrum if loan scenarios are falling apart or monthly payments are going up by a significant amount overnight? Realistically, the only good I can think of is for the smug sense of self-satisfaction that old people get when they tell young people how easy they have it. So congratulations to you if you remember your 18% mortgage rate in 1981 and think that anyone concerned about rates moving UP to 4% today is whining unnecessarily.
It's a different world now, and there's reason to believe that the early 80's were a singular aberration in the history of US rates and inflation. It could be the case that mortgage rates stay in a 3-6% range indefinitely. In that sense, a move from 3.875% to 4.0% just one short month after being as low as 3.5% is a very big deal, and an exceedingly abrupt move higher. It's not quite as abrupt as May/June 2013, but it's a close second for the post-meltdown period.
As the title implies, today's pain was all about the Jobs report, and its associated implications regarding Fed rate hikes. That is, the strong jobs number raises concerns that the Fed will hike sooner than later. It's not that Fed rate hikes have anything to do with mortgage rates directly, but in the process of removing accommodation, one of the Fed's steps will be to shrink their balance sheet. That includes MBS holdings (the "mortgage backed securities" that dictate rates). So any step in that direction is a step that hurts MBS today, and consequently raises rates.
Loan Originator Perspective
"Another stellar jobs reports pushed mortgage rates higher. If you floated into this report, your pricing today will be much much worse. At this point, i would recommend to float until Monday to see if the sell off is over done. Hopefully buyers will show up as nobody wants to catch the falling knife today." -Victor Burek, Open Mortgage
"Mortgage Rates worsened considerably today and locking remains the best option as rates are not moving in our favor, in fact they are on the rise. After breaking a support level that has been significant for a few years now, I fully expect rates to be volatile for the next few weeks." -Brent Borcherding, brentborcherding.com
"A strong jobs report this morning on the heels of a strong report in February created pain today for mortgage pricing and rates are up across the board. Whether we see any follow through to this next week or a reversal of some kind will give us some hints on the direction of rates in the near future. It probably makes sense to lock up everything now unless you have a strong tolerance for risk and a further move up doesn't hurt you a lot." -Hugh W. Page, Mortgage Banker, Seacoast Bank
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 began with a strong move to the lowest rates seen since May 2013. The catalyst was Europe and the introduction of European quantitative easing.
- With European QE having now begun, we're on high alert for a big picture bounce in European economic data, sentiment, growth, and rates. The more it looks like such a bounce is taking hold, the greater the risk that domestic bond markets and mortgage rates will also experience a big bounce higher. There's already a possibility that the bounce occurred in February, and we'd need to move back to January levels before ruling that out.
- While there's no guarantee that the current bounce will prove to be "the big one," it makes better sense from a risk/reward standpoint to assume it will be until that can be ruled out. That means favoring locking over floating in most scenarios, except when otherwise noted as a tactical opportunity.
- 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).