Are We Too Complacent With Record Low Mortgage Rates?
It's gonna be tough to explain the behavior of mortgage rates today. Here goes...
Right off the bat this morning, economic data wasn't impressive. Initial Jobless Claims disappointed forecasters and just can't seem to get over the 450,000 hump. The best way to describe the labor market is..."unable to muster any momentum". I think we've all gotten used to that though. The Producer Price Index told us it's getting more expensive to sell consumer foods. That's a good thing for the economy right? We need to a little inflation! Eh..not this type of inflation (cost push). No we need what is called "Demand Pull" Inflation. This is when consumers are buying goods faster than producers can supply them. In order for consumers to have enough income to spark a little "demand pull" inflation, they must have a job!! Annnnnnnd we've gone full circle already....
The bond market wasn't bothered by the uptick in producer level inflation, but it wasn't encourage by the worse than expected read on jobless claims either. The market's reaction was sorta stale. It wasn't until later when the atmosphere got a little more turbulent...right after a chorus of crickets sang in unison during the third and final bond auction of the week. Poor demand for $13 billion bonds sent Treasury yields to their session yield highs/price lows. That wasn't a good sign for mortgage rates. I had to issue an ALERT!
We waited and waited for a sell off but mortgage-backed securities managed to keep it together for most of the day. The simple explanation for this durable technical performance is "demand was greater than supply". It's a cheap explanation but it applies perfectly. Notice I said "most of the day" there two sentences ago. Yeh. Mortgage rates didn't finish the day strong. The favorable "supply and demand" environment dried up and MBS ended up losing their luster late in the session before closing at their session price lows/yield highs, just like their benchmark guidance givers (Treasuries).
This led a few lenders to reprice for the worse, but most lenders cruised into the close leaving morning rate sheet pricing unchanged. This was a good thing for consumers because closing costs got a little cleaper today!
The best par 30 year fixed mortgage rates remain in the 4.000% to 4.250% range for well-qualified consumers. Some lenders still go as low as 3.75% if the borrower is willing to pay points, but these offers are getting harder to come by. The best par 15 year mortgage rates are in a range between 3.500% and 3.875%. 5 year ARMs are being quote near 3.00%. Mortgage Rate Disclaimer: Loan originators will only be able to offer these rates to borrowers who have perfect credit profiles and enough equity in their home to qualify for a refinance. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan a riskier investment. (investment properties and second homes are a riskier investment )
Consumer closing have been slowly creeping higher though. If this trend keeps up, by next Friday everybody will be asking "Hey. Where did 3.875% go? 4.25% used to be a no point loan, now it costs me a point".
This leads me to wonder if maybe we've gotten too comfortable with record low mortgage rate quotes?