Mortgages Rates moved higher today at their fastest pace in months. 3.875% Best-Execution is off the table today and even the more aggressively-priced group of lenders is most advantageously priced at 4.0%, some lenders at 4.125%. This was a very big, very fast move. (read more about Best-Execution calculations).
For those that want to know WHY rates moved higher so quickly:
(NOTE: For most of this discussion, we'll actually reference 10yr Treasury yields, even though it is Mortgage-Backed-Securities (MBS), that most directly influence lender's rate sheets. When markets are undergoing bigger shifts than they've recently seen, 10yr Treasuries are a better indicator to measure the progress and severity of those shifts. We'll ALWAYS make note of any major discrepancies between MBS and Treasuries on the occasions where we talk about both.)
There are several layers of causality. We discussed the "perfect storm" of events that drove rates higher yesterday. That discussion included Greece's recently fully-approved 2nd bailout, a slightly more upbeat FOMC Announcement, slightly stronger Retail Sales, and the general trading dynamics that left bond markets "susceptible" to the weakness.
Yesterday, we talked about that susceptibility as leaving room to run up to about 2.13% in terms of 10yr yields. Today's rout was the next destination in that technical framework. What begins as a test of higher-than-recent interest rates can quickly turn into a brutal disintegration if certain dominoes fall. Without attempting to explain every esoteric concept of the underlying markets, suffice it to say that between yesterday and today, some very big dominoes started falling, and we're not sure if they're done yet.
For those that want to know WHAT TO DO next:
Here's what we said yesterday:
"Rates are either on the verge of moving sharply higher, or they're soon to correct decidedly back into a 3.875% Best-Execution zone. The frustrating part is that they might look like they're moving higher at first only to bounce back a few weeks later. If you weren't already locked and have been waiting to do so, rates are STILL close enough to historic lows that floating doesn't make much sense tonight. Given how close markets have been pushed to the edge of recent ranges, we'll have a much better sense of how the recent range is faring by tomorrow afternoon."
We now have that better sense... The recent range is demolished. How quickly it comes back and whether it comes back are not known today. We'd guess that it probably will come back, but would not advocate that anyone plans on it happening when deciding whether or not to lock or float. There hasn't been much reason to float in general, and we haven't been shy about saying so.
At this point, rates are still around 4%. They're still close enough to recent lows that you're not "missing out" on some epic opportunity by locking at a loss today. Naturally, we're only speaking to folks who are or were on a fence about locking in a rate and haven't done so. If you have a definite NEED to execute a refinance loan in the near future, you'll have to seriously consider how much more rates could go up before you'd be unable or unwilling to afford the payment.
Rates COULD bounce back lower OR RISE yet again tomorrow. You'll have to decide if the potential for an eighth of a percent improvement is worth the risk of moving another eighth higher. This is very tough to consider because, again, we generally feel like 3.875% Best-Execution will be back sooner or later, but there are times when the market forces your hand into a capitulative position, and for many, this is probably one of them.
Today's BEST-EXECUTION Rates
- 30YR FIXED - 4.0% at best. Some 4.125%
- FHA/VA -3.75%
- 15 YEAR FIXED - 3.25% some 3.375%
- 5 YEAR ARMS - 2.625-3.25% depending on the lender
Ongoing Lock/Float Considerations
- Rates and costs continue to operate near all time best levels
- Current levels have experienced increasing resistance in improving much from here
- There are technical reasons for that as well as fundamental reasons
- Lenders tend to get busier when rates are in this "high 3's" level and can throttle their inbound volume by raising rates or costs.
- While we don't necessarily think rates are destined to go higher, given the above facts, there seems to be more risk than reward regarding floating
- But that will always be the case when rates operating near historic lows
- (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario. There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).