Mortgage Rates: Better Here, Not Everywhere
The primary mortgage market has been a roller coaster ride lately. Best Execution* quotes have been all over the place.
Just 10 sessions ago, after setting new year-to-date lows, home loan borrowing costs started shifting in an unfavorable direction. Several instances of "spiking" were seen.
Things got pretty hair there for a minute. It really looked like rates were about to erase a two-month rally.
And then came a bucket of cold water..... The June Employment Situation Report.
It was tough to find positive news in this month's official jobs report. Following payroll gains averaging 215,000 per month from February through April, employment has been essentially flat for the past 2 months. Stock markets didn't like this news and a "flight to safety" poured into Treasury debt. This presented more evidence that our economic recovery is facing strong headwinds as we cross into the 2nd half of the year, a view that supports our outlook for lower rates by the end of summer. (At least we're still adding jobs though, not losing them, albeit at a frustratingly slow pace FULL RECAP)
A "flight to safety" happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate their money into risk-free government guaranteed U.S Treasury debt to provide a safe-haven AND an investment return. As benchmark Treasury yields fall on "flight to safety" buyer demand, prices of mortgage-backed securities move higher in unison. This allows lenders to reprice their rate sheets for the better and gives originators an opportunity to offer fence-sitting borrowers lower mortgage rates or more competitive closing costs.
That was last Friday. Since then we've seen a significant reversal of recent loan pricing weakness. There's a problem though, not everyone is keeping up with new developments. All this volatility has worn out rate sheets. Lender offers are all over the map! While some have adjusted to more closely reflect our current market observations, others have barely budged since last Thursday when rates were at one-month highs.
CURRENT MARKET*: The "Best Execution" conventional 30-year fixed mortgage rate is 4.625%. While this was the case last week, few lenders were readily quoting it. More lenders were instead offering 4.75% (extra margin in rate sheets). But when taking into account loan pricing improvements awarded on Friday and today, a greater number of lenders are actively quoting 4.625%. Some are even offering 4.50% again (scattered reports). On FHA/VA 30 year fixed "Best Execution" is 4.375% and in some cases 4.25% is on the table. 15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are still best priced at 3.25% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario.
PREVIOUS GUIDANCE: We have good news and bad news. The bad news is, the U.S. labor market isn't producing jobs quick enough to boost the broader economic recovery. This weighs on housing, especially the purchase market and home prices (possible downward spiral). The good news is, a slow economic recovery supports our outlook for lower interest rates by the end of the summer (if they could only spark a little more loan demand!). Still, while the case for our long-term outlook remains intact, until we see investors display a commitment to rally, we will be reluctant to advise floating in the short-term, especially with unfriendly volatility only a few days behind us. We would be willing to float into Monday though, just to give today's poor jobs report a chance to settle in.
CURRENT GUIDANCE: There are two decidedly different tones between this week and last. Whereas markets seemed fixated on mostly jobs in in the holiday shortened work week behind, the one ahead offers many scheduled economic releases and events to trade around. And market sentiment isn’t looking good as a new week packed with news gets underway (not good for stocks. good for bonds). This implies a "flight to safety" could continue to benefit mortgage rates in the near-term. Still, while the case for our outlook ("lower rates by the end of the summer") remains intact, until we see investors display a commitment to rally, we will be reluctant to advise floating in the short-term, especially with unfriendly volatility only a few days behind us. We would however be willing to float into tomorrow. Just to see if this situation plays out in favor of lower rates right now.
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BEWARE: MND guidance is speculative in nature. We don't
have a crystal ball, we can't predict the future, we can only share our
outlook. Making the following considerations extra
important........................
What MUST be considered BEFORE one thinks about capitalizing on a rates rally?
1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?
*Best Execution is the most cost efficient combination of note rate
offered and points paid at closing. This note rate is determined based
on the time it takes to recover the points you paid at closing
(discount) vs. the monthly savings of permanently buying down your
mortgage rate by 0.125%. When deciding on whether or not to pay points,
the borrower must have an idea of how long they intend to keep their
mortgage. For more info, ask you originator to explain the findings of
their "breakeven analysis" on your permanent rate buy down costs.
*Important
Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes
shared above are generally seen as the more aggressive side of the
primary mortgage market. Loan originators will only be able to offer
these rates on conforming loan amounts to very well-qualified borrowers
who have a middle FICO score over 740 and enough equity in their home to
qualify for a refinance or a large enough savings to cover their down
payment and closing costs. 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 more expensive. "No point" loan
doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA
mortgage rates still include closing costs such as: third party fees +
title charges + transfer and recording. Don't forget the fiscal frisking
that comes along with the underwriting process.