As if to reinforce the gravity of the events that lie ahead, Mortgage rates were perfectly flat today, on average, meaning that today's rate sheets are in the same territory as yesterday's latest. That keeps them in line with the best levels of the month ahead of tomorrow's potentially game-changing Announcement from the Fed. Conforming, 30yr Fixed rates held between 4.5% and 4.625% for the most efficient combination of upfront cost and monthly payment (best-execution).
Tomorrow's meeting of the Federal Reserve's (aka "The Fed") Federal Open Market Committee (FOMC) has increasingly become the most likely venue for the Fed to signal a reduction in asset purchases (aka "tapering"). In addition to a potential tapering announcement, the Fed may also change the verbiage of their official policy statement. This can have a material affect on rates.
Taken together with the Fed's updated forecasts and Bernanke's press conference, tomorrow's potential for market movement is utterly massive. No one knows what to expect, the market participants trading the securities that ultimately dictate mortgage rates are ready to go either direction, and quickly. Past examples are largely out the window because of the unprecedented nature of events.
One thing's for sure: Fed Announcements can never be perfectly "priced-in" to trading levels (and consequently "mortgage rates") because we don't know how the Fed will say what we think they'll probably say. It makes no sense for traders to be ready for the worst possible news because that would cost them incrementally more to play catch up if the news is good.
In general, they'd like to be in as central a location as possible, so they can move in either direction, and the trading pattern over the past few days supports that. Be prepared for rates to go either way at a very fast pace. There's always a possibility that rates will end up in similar territory to today, but there's rarely a possibility for them to move as much as they might tomorrow.
Loan Originator Perspectives
"Regardless of your choice to float/lock, one important note is the
chance that your loan officer may not be able to lock your loan in the
afternoon. Rate desks may shut due to volatility, and you don't want to
find yourself on the wrong side of things" -Ira Selwin, VP of Secondary Marketing, US Mortgage Corporation
"Anxious day in rate markets as all await tomorrow's Fed statement. We've been assuming that at least some taper is priced into the markets since the pronounced upward rate trend this summer, guess we will find out if that's the case tomorrow. One would hope there won't be any surprises in the statement, remains to be seen how the Fed will view recent weak economic data." -Ted Rood, Senior Originator, Wintrust Mortgage
"The moment we have been waiting for comes tomorrow at 2pm. Rates could go either way. If you plan on locking before, today is the day. I feel the announcement is going to be friendly for rates, but float at your own risk. If you are tight on qualifying, you better lock today. If you can afford a higher rate and payment, floating could pay off." -Victor Burek, Open Mortgage
"It's simple - the market is volatile. Tomorrow might be good for rates, but I think muted by overall tapering that will occur. Tomorrow might be bad for rates, which could be real bad. I've advised my clients floating, who are closing by the end of October, to lock today." -Matt Hodges, Charlottesville Sales Manager, Presidential Mortgage Group.
"Tomorrow could be the end all,tell all! (wait haven't we had a few of those days already?). If you are locked in--- please get your loan done! If you are on the fence, you may fall off tomorrow." -Bob Van Gilder, Finance One Mortgage
"We’re still in a high-risk environment for rates. Although tomorrow will certainly dictate the short-term direction, immediate reactions should be viewed as temporary until investors prove a willingness to end the recent rising rate trend. Expect volatility and the possibility that rate sheets are recalled, suspended, and changed mid-day. Stay tuned!" -Adam Quinones, Head of Mortgages and ABS, Thomson Reuters
"Judgment day has arrived! I am locking all loans closing in 15-30 days today and tomorrow morning with the exception of clients who are willing and financially capable of gambling into the report. For those that have float down options, locking is the way to go. Longer term scenarios an fence sitters hoping for much lower rates may as well light a candle, pray to the sun god, or whatever ur denomination of faith recommends in hope for a beneficial surprise. The consensus is rates will go higher, and tomorrow is just a part of the process. " -Constantine Floropoulos, Quontic Bank
Today's Best-Execution Rates
- 30YR FIXED - 4.625%, some 4.5%
- FHA/VA - 4.25
- 15 YEAR FIXED - 3.75%
- 5 YEAR ARMS - 3.0-3.50% depending on the lender
Ongoing Lock/Float Considerations
- After rising consistently from all-time lows in September and October 2012, rates challenged the long term trend higher, but failed to sustain a breakout
- Uncertainty over the Fed's bond-buying plans is causing immense volatility in rates markets and generally leading rates quickly higher
- Fears about the Fed's bond-buying intentions were proven well-founded on May 22nd when rates rose to 1yr highs after the Fed indicated their intention to taper bond buying programs sooner vs later
- The June 19th FOMC Statement and Press Conference confirmed the suspicions. Although tapering wasn't announced, the Fed made no move to counter the notion that they will decrease bond buying soon if the economic trajectory continues
- Rates Markets "broke down" following that, as traders realized just how much buy-in there was to the ongoing presence of QE. These convulsions led to one of the fastest moves higher in the history of mortgage rates and market participants have not been eager to be the among the first explorers to head back into lower rate territory until they're sure they'll have some company.
- (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario. There are many reasons a quoted rate may differ from 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).