Mortgage Rates Pull Back Before Rising Past Recent Highs

By: Matthew Graham •

Mortgage Rates held steady to slightly improved today after a disconcerting rise to the highest levels in a month yesterday.  That said, today's rate offerings are not much better, and some lenders are even slightly worse, but on average the Best-Execution Rate for 30yr Fixed, Conventional loans fell just under 0.02%, keeping the rounded average at 3.5% among the best-priced lenders and 3.625% for others. 

(Read More:What is A Best-Execution Mortgage Rate?)

Today's most significant event for mortgage rates was the 10yr Treasury Note auction.  Even though mortgage rates are driven primarily by movements in MBS (Mortgage-backed-securities), Treasuries are the benchmark of the domestic interest rate market.  Their movement tells us more about the broader trends in rates while MBS tell us more about the day to day.  When Treasuries move sharply, MBS tend to follow to some extent. 

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Today was one of those days.  MBS were set on a fairly optimistic course, and one that could have resulted in lenders offering improved rates this afternoon had it not been for an ugly 10yr Treasury Auction.  Demand was week, and the awarded yield was higher than expected.  10yr yields shot up to their highest levels since July 2nd and MBS yields followed. That said, MBS were able to mostly hold on to yesterday's weakest levels, but their previously positive tone for the day was extinguished, leaving us with relatively unchanged rates.

The bigger question may be whether or not today's market gyrations are simply another expansion of a recent trend higher in rates.  Even though mid-day weakness was able to correct into the afternoon, we're still left with bond markets that pushed their recent ceiling that much higher.  In this way, intraday volatility can "make room" for rates to rise incrementally higher going forward.  It's sort of like "2 steps forward, 1 step back."

We're not sure if that's what's happening now, but a case could be made for it having happened on several occasions in the past two weeks.  Things have been getting recently more disconcerting with trends in rates and while we're not sure we'd necessarily believe if it you told us rates would keep rising, we don't think it's a bad idea to take precautions as if that were to be the case--ESPECIALLY if you have yet to see your quote move up to the next .125% higher in rate.

Long Term Guidance: We'd continue to advocate against trying to "get ahead" of current market movements due to the high degree of uncertainty.  For those with lower levels of risk tolerance who would consider movements in cost (despite unchanged interest rates) to be significant, or for those within 15 days of closing, or who are purchasing, this certainly favors locking.  For those with longer timelines, less urgency to refinance, or wider ranges of risk tolerance, we'd note the generally "depressed" rate environment due to the European crisis and simply keep our eyes peeled for the major changes in European policy that result in noticeable changes in Best-Execution mortgage rates (i.e. the actual quoted RATE is moving as opposed to simply the COST).  In either scenario, we'd consider that rates remain very close to all-time lows.

Loan Originator Perspectives

Ted Rood, Wintrust Mortgage

I've been saying for some time that it was foolhardy to assume rates would stay at record lows indefinitely, and the last few days' action may be the start of upward move. Don't think today's rates will be the best for the next few weeks, but the overall trend is up. This is a time to be extra vigilant if you're floating, there is much more potential for rates to deteriorate than to dive!

Mike Owens, Partner with HorizonFinancial, Inc.

Locking is the only way to avoid rate risk. This market seems to have hit the floor and is slowly making it's way back to a standing position. Right now it is shaking off the punch and has 2 knees on the ground, soon 1 knee, then standing and we're looking at 3.75% or higher. That's my take. I'm hoping for a cheap shot that knocks it back down, but that's your risk. There is my metaphor for the day.

Today's BEST-EXECUTION Rates 

  • 30YR FIXED -  3.5%, Some Approaching 3.375%
  • FHA/VA - 3.25-3.5% (varies more between lenders than conventional 30yr Fixed)
  • 15 YEAR FIXED -  2.75 - 2.875%
  • 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
  • Rates could easily move higher or lower, but given the nearness to all time lows, there's generally more risk than reward regarding floating
  • But that will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn't always mean they're done improving.
  • (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).