Mortgage Rates Finally Pull Back. Should You Worry?
July 7, 2016
Mortgage rates finally ended an impressive winning streak today, rising for the first time in 9 days. Rates began that streak with a massive move lower following the UK's vote to exit the European Union and maintained momentum until they were right in line with all-time lows yesterday.
Any time a winning streak extends past the 5 day mark (that's 5 business days, by the way), we begin to look for the inevitable correction that almost never takes more than 3 more days to show up. In that sense, today's moderate move higher in rates isn't much of a surprise. In fact, the resolute strength was arguably more surprising, and it raises questions as to how serious this single day of weakness may be.
The answer to those questions likely lies in tomorrow's big jobs report. Just yesterday, the minutes from the most recent Fed meeting showed us that the last jobs report was a bit of a concern for the Fed, and one of the reasons they kept rates steady last time around. The Minutes also mentioned that the Fed wanted to see continued improvement in employment data, and to essentially rule out that the last jobs report was the start of an alarming shift toward labor market weakness.
While it's true that one piece of economic data isn't enough to decisively put those questions to rest, tomorrow's report can still have a big impact. If it's much weaker than expected (i.e. lower job creation) markets will assume the Fed will continue waiting to raise rates, and mortgage rates would likely benefit from that scenario. If, on the other hand, it is unexpectedly strong, watch out! Such a report would effectively cancel out the alarming implications of the previous report--implications that helped rates move significantly lower in early June.
Of course, there's always the possibility that the numbers land somewhere in between, and that rates don't end up moving too much at all, but the point is that the POTENTIAL for bigger movement is elevated tomorrow. Moreover, if we get a big move higher in rates tomorrow it will increasingly make yesterday look like a "bottoming-out" for rates in the medium term.
Loan Originator Perspective
"Tomorrow brings June's NFP jobs report, often touted as the most meaningful monthly economic release. Today's slight pullback in bond markets surprised no one, it's simply not feasible to post gains every day for weeks on end. Frankly, I'm encouraged the losses (as of press time) have been minimal. It's always a tough call on floating through NFP, but I'm still waiting to lock several August closings. We'll know soon enough." -Ted Rood, Senior Originator
Today's Best-Execution Rates
- 30YR FIXED - 3.25-3.375%
- FHA/VA - 3.25%
- 15 YEAR FIXED - 2.75%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- Markets had been primarily concerned with the timing of the Fed's second rate hike (after they first hiked in December 2015)
- The possibility that the U.K. would vote to exit the European Union (Brexit) has since taken over as the biggest flashpoint for markets.
- The Fed freely admits it didn't hike in June because of this and because it wants to be sure that jobs numbers aren't taking a bigger turn for the worse. Mortgage rates moved farther into 3-year lows as a result.
- Brexit happened and rates rejoiced. Lock if you like what you see. The longer term trend remains positive regardless, but periodic corrections toward higher rates continue to be a risk.
- 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).