Bad Day for Mortgage Rates. Are the Lowest Rates Behind Us?

Mortgage rates didn't have a chance today.

Borrowing costs started moving higher early in the session and never looked back.

As the day progressed, agency MBS prices fell further and lenders were forced to reprice for the worse. 

Par 30-year fixed 4.25% quotes are still on the board, but closing costs are at least 15bps higher (+0.15% of loan amount).

That's really a best case scenario though. If you're a passenger on the float boat, your closing costs probably increased by about 0.25% today.  4.375% is almost the new par.

But 4.25% is definitely still do-able for very well-qualified borrowers (no loan level price adjustments).  Now 4.125%, that might be tough.  That quote is costing perfect borrowers about 2pts.

The culprit of this event? Well. We can't factor out a religious holiday: Rosh Hashanah. Many decision makers were out of office today, if not to celebrate their faith, at least to look after their kids who were enjoying a day off (public schools). 

Combine that with an already apathetic investing bias plus a poor turnout at a Treasury bond offering...and the market got a little sensitive.  Yes MBS had a very bad day today. But we've had bad days before. Yes loan pricing got dinged today. But we've seen loan pricing get dinged before.

We expected rates to move higher this week. If you're floating, that means you've been doing so under the assumption that loan pricing was going to worsen this week. You knew to expect a period of volatility as the market searched directional leadership in a quiet environment. Rates could very well trend higher in the month ahead.

It was a really boring summer for return hungry investors, there is potential in the marketplace for stocks to rally on, even if the rally is built from glass. View it as professional traders attempting to spark some excitement. Profit Churning. If that makes you feel queasy, it's not too late to lock up at a really really aggressive rate, especially if you're closing in September.

But we never thought 3.5 MBS coupons would trade with enough liquidity to allow lenders to offer rates below 4.25%, but they did, albeit briefly. The economic and political environments  are still clouded with uncertainty and muddled with assumptions based on assumptions.  It's hard to believe stocks could run too high without being spooked by a weak read on the labor market or another leg lower in the housing market.

Does this mean the lowest mortgage rates are behind us?

We might have seen the lowest rates we're ever gonna see, if that is the case, then those rates are already behind us so it doesn't mattter. But I think rate watchers with waiting time should sit back for now and see how this latest shift in benchmark yields plays out. If push comes to shove and we need to pull the emergency chute, we will alert.  In the meantime, let's see how the market reacts to higher yields. Play the Range Until the Range Plays You.