April 3, 2015
Mortgage rates scored a major victory today at the expense of the labor market. Recent examples of the Employment Situation Report (the big "jobs report," which dwarfs all comers in terms of significance) have been surprisingly strong. That presented major problems for rates in February and March as it ramped up expectations for a Fed rate hike. But those expectations have come crashing down in the past few hours. This report wasn't just moderately weaker, it was the biggest month-over-month drop in well over a year.
The bond markets that underlie mortgage rate movement responded immediately, moving to the best levels in nearly 2 months. As for mortgage rates themselves, lenders offerings actually matched those seen on Feb 3rd, making for official 2 month lows (hey... February is a "month" too. No one said anything about "61 day lows"). Most lenders are now down to 3.625% in terms of the most prevalent conventional 30yr fixed rates for top tier scenarios.
With this data and this market movement, things are just getting interesting in 2015! There's always a risk that rates will move higher, but days like today suggest that such a move is, by no means, a foregone conclusion.
Loan Originator Perspective
"Non-Farm Payrolls swings and misses big. With today being a shortened trading day, lenders will be quite conservative with their pricing. Float til Monday!" -Victor Burek, Open Mortgage
"Rates improved today as the Non farm pay roll number came in much worse than expected. There were also significant revisions to the downside for January and February. If your lender was open today, locking in these gains is not a bad idea but this trend can continue and may be worth floating. If you locked before today there is no shame in having done so. From a risk/reward stand point it was the right call. Lets hope pricing can improve enough so you may float the rate down!!" -Manny Gomes, Branch Manager Norcom Mortgage
"A weak Jobs Report this morning portends better pricing over the near term. Lenders will not likely pass along much in terms of better pricing today so the beginning of next week has a higher than likely chance of improvement. Floating into next week is certainly okay for longer term locks and likely okay for everyone. However, we know markets can turn quickly and we are still sitting close to potential technical inflection points. So, stay vigilant and in touch with your loan officer." -Hugh W. Page, Mortgage Banker, SeacoastBank
"Today's data is what rate watchers live for. For all those brave enough to float into today, kudos, you live to see the promised land. For those who locked, kudos, you did the right thing before a major report may have crushed your deal. We will not see the vast majority of today's move until next week, where I feel it will begin to truly unravel. The jobs number was not just a miss, it was a massive miss--lmost 50% less than expected with revisions to the previous month indicating even fewer jobs have been created. Although the FED will move on raising rates, this buys us some more time heading into the hot purchase season....add in possible economic problems in the fragile Euro-zone and we may be heading to all time lows this summer. I would wait until Monday before locking, but if the improvements aren't extending, it's a good argument for locking--even longer term deals potentially." -Constantine Floropoulos, Quontic Bank
Today's Best-Execution Rates
- 30YR FIXED - 3.625
- FHA/VA - 3.25-3.5
- 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 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 was a possibility that the bounce occurred in February, but European bonds got back to the task of improving in March. This has helped calm the domestic bond market's move toward higher rates.
- It's a highly uncertain time for global financial markets. On the one hand, some believe we're in the midst of a race among world central banks to devalue currencies and lower interest rates. Others believe that the global economy is turning a corner and rates will grind higher. That creates a lot of volatility, and volatility is bad for mortgage rates. One result is that they have a slightly harder time keeping pace with movement in Treasuries. That can be good or bad, depending on which way markets are moving. The other result is that there really is no way to be sure that today's rates will be available a few hours from now. They could get better or worse, but the point is that there's more change and movement in the mortgage market so far in 2015.
- 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).