iPacific Capital

• Mortgage Rates Higher Following Employment Report

  The monthly Employment Situation Report was released at 8:30am this morning, with much better-than-expected results.  Stocks rallied sharply and most every interest rate in fixed-income markets moved higher.  The economic optimism created by this sort of data tends to increase demand for riskier investments like stocks and lower demand for things like fixed-income notes and bonds.  MBS (the “mortgage backed securities” that most directly govern mortgage rates) fall into this fixed-income sector, and definitely weakened following the jobs data.  As a result, Mortgages Rates moved higher at their fastest pace in some time, traversing most of this week’s territory, but leaving Best-Execution rates mostly at 3.875%.  (learn more about how we calculate Best-Execution in THIS POST). 

  We’d said yesterday that MBS were looking like a runner in baseball taking a “lead-off,” waiting to find out whether or not the jobs data would be “a hit.”  We went on to say a stronger than expected report would result in MBS simply moving back to the safety of the base to wait for the next pitch.  That’s essentially what’s transpired today.  Our heroic little base-runner was clearly spooked by the data, and clearly backtracked to previous ground.  But in the process, we see “the base” metaphor emerging as a real possibility, in that markets weakened, but were able to dig in and hold firm after a certain point.  Bottom line, the runner is back on the base, but was not “tagged out,” at least not today.

  The next pitches will be thrown next week in the form of US Treasury auctions.  While it’s true that mortgage rates are based on MBS and NOT on Treasuries, the Treasury Auctions are still a significant event for MBS, especially the longer maturity issues on Wednesday and Thursday.  Things are less certain on Monday and Tuesday, and it’s possible rates could be weaker if markets extend today’s movements against the backdrop of limited economic data on those first two days of the week.  We’ll know a lot more about how longer-term trends are evolving with the passing of at least the first important auction, Wednesday’s 10yr Notes.  Between now and then, 3.875% Best-Execution is STILL on the table, albeit at a higher cost than yesterday.  The point is that if you didn’t lock yesterday, today is not so much worse that you should just hold off indefinitely.  For those who are taking the risk floating into next week, things could get bumpy, but we’ll know a lot more about that on Wednesday. 

  On a final note, we have to put out the constant caveat that European headlines do not adhere to a schedule and certainly have the potential to move markets in unexpected ways, by unexpected amounts, at unexpected times.

  Today’s BEST-EXECUTION Rates

  • 30YR FIXED -  3.875% mostly, less 3.75 today, 4.0’s getting closer
    
  • FHA/VA -3.75%
    
  • 15 YEAR FIXED -  3.25%
    
  • 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).
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• Mortgage Rates Maintain Record Lows Ahead of Friday's Jobs Report

  For the second day in a row, Mortgages Rates are just slightly better than unchanged.  Best-Execution remains at 3.875% for conventional 30yr fixed loans, and the slight improvements seen today have benefited the borrowing costs required to obtain those rates.   (learn more about how we calculate Best-Execution in THIS POST).  Also in the same vein as yesterday, the stratification between lender offerings continues to lessen, and the improvement in our measurement of rates today reflects that consolidation more than a broad-based movement down in rate.  That said, 3.75% got a bit closer to vying for the Best-Execution crown.

  The similarities to yesterday keep on coming…  MBS (the “mortgage-backed securities” that most directly affect mortgage rates) pressed further into all-time highs today, almost like a runner in baseball taking a “lead-off.”  In this game, MBS are possibly waiting to find out whether or not tomorrow’s important jobs data is “a hit.”  If it’s weaker than expected, and by a significant enough margin to matter, interest could move lower based on their historical tendencies.  In that case, MBS would be well-positioned to steal the next base, thus helping to make the case for a 3.75% best-execution level.  But if the jobs report is stronger than expected, MBS could simply move right back to the safety of their base and wait for the next pitch.  In this case, the “base” would be the 3.875% best-execution rate for cream-of-the-crop 30yr fixed  loans. 

  Now, it’s important to keep in mind that markets frequently buck historical trends, in essence, acting opposite the expectation.  So that’s another possibility for tomorrow, as well as the less-fun-to-imagine chance that MBS get “tagged out” before getting back to base.  It’s hard to imagine a runner that has been as strong and consistent as mortgage-rates have recently been, being dealt a major set-back, but it pays to be ready for anything.  To that end, and without any bias toward what might happen tomorrow, few if any savvy market watchers would find fault in locking an interest rate the day before an influential piece of economic data, when MBS have just traded to their all-time highs.  Some folks might prefer a riskier stance in the hopes of a rate-friendly jobs report tomorrow or some other future chance at a lower rate, but if you’re inclined to lock and/or have been on a fence, it’s about as good a time as we’ve seen considering the circumstances.

  Today’s BEST-EXECUTION Rates

  • 30YR FIXED -  3.875% mostly, increasing presence at 3.75%
    
  • FHA/VA -3.75%
    
  • 15 YEAR FIXED -  3.25%, some lenders venturing lower, some completely stuck at 3.25%
    
  • 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).
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• Mortgage Rates Remarkably Steady At Historic Lows

  Mortgages Rates are just slightly better than unchanged on the day.  Best-Execution remains at 3.875% for conventional 30yr fixed loans, and the slight improvements seen today have benefited the borrowing costs required to obtain those rates.   (learn more about how we calculate Best-Execution in THIS POST).  Some of the stratification between lender offerings seems to be lessening now that underlying markets have demonstrated the ability to hold recent levels.  

  Particularly, MBS (the “mortgage-backed securities” that most directly affect mortgage rates) recently reached new all-time highs.  The fact that this is occurring at the same time rates are back at new all-time lows is no coincidence.  But it also means that there are some physics-based considerations for MBS prices (higher prices = lower rates).  Of course we’re not talking about real physics, but consider the adage “what goes up, must come down.”  Now, this isn’t a universal truth in bond markets, and certainly it was heard on several occassions over the past 5 months, with everyone who mentioned it turning out to be wrong.  So we’re not saying MBS prices are destined to go lower simply because they’ve hit their all-time highs (meaning rates would likely move higher off all time lows). 

  What we ARE saying is that things have never been as good as they are right now in terms of MBS and the rates that lenders are offering.  We certainly don’t rule out the possibility that things could get even better, but we’d sure hate to have missed out on this opportunity if they don’t.  The comforting caveat is that if things do improve, that progress will likely be slow and potentially limited in scope.

  Tomorrow is the last day until Friday’s Employment Situation Report (aka “jobs report,” or “NFP”) brings a high-risk situation into the mix.  NFP, which stands for the the reports chief component “Non-Farm-Payrolls” is generally regarded as the single most important piece of economic data each month.  Even against the current backdrop of European headlines exerting more and more influence on domestic markets, it’s immensely important.  Based on where markets sit right now, we think that rates are somewhat vulnerable if the report is better-than expected.  In other words, there’s a certain natural level of “push-back” at current rate levels anyway, and a bullish jobs report would probably accelerate that. 

  This, of course, is contingent on the report coming in with better-than-expected results.  If the opposite happens, rates could still improve. 

  Today’s BEST-EXECUTION Rates

  • 30YR FIXED -  3.875% mostly, increasing presence at 3.75%
    
  • FHA/VA -3.75%
    
  • 15 YEAR FIXED -  3.25%, some lenders venturing lower, some completely stuck at 3.25%
    
  • 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).
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• Mortgage Rates Slightly Higher Despite Bond Market Improvements

  After setting new record lows yesterday, Mortgages Rates rose slightly today, though 3.875% best-execution remains intact.  Rather than affect the prevailing rates being quoted, today’s weakness is most likely to be seen in the form of slightly higher borrowing/closing costs for the same rates quoted yesterday (learn more about how we calculate Best-Execution in THIS POST).  The increases run counter to today’s market movements as well.  

  Treasury yields are lower again today, and MBS (the “mortgage-backed-securities” that most directly govern interest rates) are slightly improved as well.  One reason that loan pricing hasn’t adjusted to match that fact is that MBS weakened late in the trading session yesterday.  Not all lenders priced that in by issuing adjusted rate sheets, instead reflecting the changes in this morning’s rates.  The MBS market was indeed weaker this morning, so if we’re comparing the time of day that most lenders put out their first rate sheets, today was indeed worse than yesterday.  Beyond that objective explanation, we also have to consider the fact that continued rate improvements from all-time lows are going to continue to be slow and hard-fought.  Lenders have little incentive to offer lower rates if current offerings are generating more-than-sufficient demand.  (read more on this topic in this previous post)

  Finally, and although it’s not the only other potential factor, this Friday’s Employment Situation Report (aka “jobs report,” or “NFP”) represents a high-risk situation, ESPECIALLY with mortgage rates at or near all-time lows.  NFP, which stands for the the reports chief component “Non-Farm-Payrolls” is generally regarded as the single most important piece of economic data each month.  Even against the current backdrop of European headlines exerting more and more influence on domestic markets, it’s immensely important.  Based on where markets sit right now, we think that rates are somewhat vulnerable if the report is better-than expected.  In other words, there’s a certain natural level of “push-back” at current rate levels anyway, and a bullish jobs report would probably accelerate that. 

  This, of course, is contingent on the report coming in with better-than-expected results.  If the opposite happens, rates could still improve.  It’s just that those improvements would likely be slower and smaller than the losses would be in the opposite scenario.  It’s also very much contingent on rates not moving much between now and Thursday afternoon, which may or may not be the case.

  Today’s BEST-EXECUTION Rates

  • 30YR FIXED -  3.875% mostly, with a few lenders on either side of this
    
  • FHA/VA -3.75%
    
  • 15 YEAR FIXED -  3.25%, some lenders venturing lower, some completely stuck at 3.25%
    
  • 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).
  …(read more)
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• Mortgage Rates Hit New All-Time Lows!

  It’s happened before and it happened again today: Mortgages Rates hit new all time lows today.  Please note, that the actual interest rate you would have been quoted last week and this week may not have changed, but based on raw data from more than 20 leading lenders as well as feedback from the MBS Live community, the average Best-Execution rate, before rounding to the nearest eighth, hit its lowest level on record, 3.81%.  Although 3.81% is closer to 3.75% than 3.875%, we won’t declare 3.75% to be the Best-Execution champ until the average from our lender survey falls to 3.75 or lower, and we’re not there yet.  (if the last paragraph is confusing, we went into some more detail on these methodologies in THIS POST).

   

  Last week, we noted a high degree of stratification in rates as lenders responded to the bond market rally at different paces.  This continues to be the case today, but perhaps to a slightly smaller extent.  When we say that rate offerings are more stratified, we’re talking about various lenders offering increasingly different rates to the same type of borrowers.  Among some lenders in our survey, best-execution rates are still at 4.0%, while the bulk have moved down to 3.875% and 3.75%.  The important point here is to not believe everything you read about mortgage rates these days, unless the source examines multiple lenders and offers the caveat that they can only report averages while individual experiences may vary. 

  For instance, several lenders are priced WORSE today than Friday.  It’s far more important to be working with someone you trust in a process that is more likely to hit its deadlines than to go overboard in pursuing the lowest possible quotes.  In the current market, overfocus on lowest possible rates can lead to delays which can result in a higher rate than the one from which you were originally trying to avoid!

  Today’s BEST-EXECUTION Rates

  • 30YR FIXED -  3.875% mostly, with a few lenders at 3.75%.  Less 4.0’s today
    
  • FHA/VA -3.75%
    
  • 15 YEAR FIXED -  3.25%, some lenders venturing lower, some completely stuck at 3.25%
    
  • 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).
  …(read more)
  Forward this article via email:  Send a copy of this story to someone you know that may want to read it.
  

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Demand for loans to purchase a home, however, only rose marginally. A continuation of this trend would not bode well for the U.S. housing market, which has been showing signs of stabilization but remains highly vulnerable to setbacks.
The Mortgage Bankers Association (MBA) said its seasonally adjusted index of mortgage applications, including both purchase and refinance [...]