December 2, 2016
Mortgage rates erased yesterday's losses after today's jobs report, though not necessarily because of it. The Employment Situation (affectionately referred to as "the jobs") is traditionally one of the biggest sources of market movement. So when rates make a big move following the jobs report, it's only natural to assume a cause and effect relationship. That said, most of the credit for today's move goes other places.
First of all, there's the simple fact that rates have been trending so decisively higher in general. Just yesterday, I noted that we were increasingly likely to see a rebound as rates continued to push the boundaries of past precedent. In other words, rates have risen about as quickly as they ever have, and it's common for any financial instrument to blow off some steam in such cases. So that's part of today's story.
The other consideration is Europe. There are several important events coming up in Europe over the next week and they're adding to market volatility. The effects were bad for rates yesterday, but European bond markets (which correlate by varying degrees to US bond markets, and thus, mortgage rates) came charging back today. The drop in Europe's benchmark rates easily outpaced the drop in US rates, effectively dictating today's momentum.
Rates ended up falling by the same amount they rose yesterday, making today one of the most abrupt reversals for lender rate sheets, ever! Lenders that had moved up to quoting 4.25% yesterday on top tier conventional 30yr fixed scenarios are now back down to 4.125%.
Loan Originator Perspective
A small victory for us who footed into today's jobs report. Not sure I would be excited, as we have seen how quickly these gains deteriorate. I am tempted to see how the referendum this Sunday in Italy shakes things up but not willing to risk rates getting worse. I think locking into this rally is the safe bet. Perhaps things reverse course next week, and the tone of lock vs float changes, but based on the momentum I need to see it to believe. I'd rather be late to the party. -Gus Floropoulos, VP, The Federal Savings Bank
Bond markets posted broad gains today, as traders digested a mixed November jobs report and upcoming Italian elections. I'm all for improved rates, but the big question is whether we build on today's gains or give them back next week. I'm still inclined to lock loans closing within 30 days. Those closing next year and/or borrowers with appreciable risk tolerance could float, just don't ignore markets as volatility is certainly a given these days. -Ted Rood, Senior Originator
Nice rally today, but is it a head fake and selling continues Monday? If you are happy with the current terms nothing wrong with locking. Personally, I would float over the weekend and see what Monday brings. Lenders tend to be conservative with pricing on a Friday and with the recent relentless selling of bonds, they will be slow to pass along all of today’s gains. -Victor Burek, Churchill Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.125%
- FHA/VA - 4.0%
- 15 YEAR FIXED - 3.375%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates had been trending higher since hitting all-time lows in early July, and exploded higher following the presidential election
- Some investors are increasingly worried/convinced that the decades-long trend toward lower rates has been permanently reversed, but such a conclusion would require YEARS to truly confirm
- With the incoming administration's policies driving a large portion of upward rate momentum, mortgage rates will be hard-pressed to make significant improvements until after Trump takes office. Rates can move for other reasons, but it would take something big and unexpected for rates to move appreciably lower.
- We'd need to see a sustained push back toward lower rates (something that lasts more than 3 days) before anything less than a cautious, lock-biased approach makes sense for all but the most risk-tolerant borrowers.
- 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).