Mortgage Rate Recovery Continues; Just a Game of Pin The Tail?

By: Matthew Graham •

Mortgage rates continued picking up the pieces today, after skyrocketing to their highest levels in over a year to begin the week.  The past two days of improvement only serve to recover a small portion of what's been lost so far in the month of May, however.  To put things in perspective, we have yet to see some lenders recover even half of the losses from Tuesday alone!   Best-execution remains at 4.0% but 3.875% is starting to look more viable.

While the trend of the past two days is welcome relief after Tuesday's rout, they're just that: relief.  In other words, we're not in a situation where we can definitively conclude that all biases toward higher rates have been washed out of the market at this point, and the two days of positivity have had more to do with correcting the final landing zone of Tuesday's move. 

 See Rates from Lenders in Your Area

To use an analogy, if we were playing "pin the tail on the donkey" to determine where rates would end up on Tuesday, our initial swing may have been a bit overzealous.  The donkey may have been slightly injured, and we've been adjusting the location of the pin yesterday and today.  This is an important analogy however, as it implies that we're not pulling the pin and stepping away--merely adjusting for a slightly less malodorous location.

We may continue adjusting that pin, to some extent, through next week (i.e. rates may continue sideways, lower, or even snap higher).  On Friday of that week, we'll get the next dose of the Employment Situation Report, which markets may take as confirmation or rejection of the idea that Fed tapering should happen sooner or later.  If the jobs report is weak, markets will lean toward "later," and vice versa if it's stronger.  Such considerations may be a bridge too far at the moment, and one that we'll cross if we come to it. 

In the meantime, the important message is that we're not out of the woods on rate volatility, even if shorter term corrections seem to suggest it.  It may well be the case that move sideways to lower heading into next Friday and catch a break with the data, but it's also possible that markets take rates back to recent highs as they test out all possible locations for the donkey's tail before taking off the blindfold on the morning of the Jobs Report.

Loan Originator Perspectives

"MBS volatility reigns and a sustained rally is elusive, so materially lower rates looking questionable short term, and the locking opportunities we're seeing this week are from investor pricing incentives to keep volume up rather than from an MBS rally. Rate shoppers should continue to be cautious about this dynamic. " -Julian Hebron, Branch Manager, RPM Mortgage

"Hard to say what rates will do between now and next Friday. I think we'll trade sideways until neek week when the ADP report comes out. There will then be bets placed on the NFP which will be watched on pins and needles. This could be the opportunity to lock before the rise continues. A good number and rates take off. A surprise bad number and we'll improve, but by how much is the question." -Mike Owens, Partner, Horizon Financial Inc.

"We regained a bit of ground we lost at the open as weekly unemployment #'s were up and the 7 year Treasury auction went well. It's encouraging to see a decent day after a strong one in MBS Land, we're had immense difficulty stringing good days together for last month. It APPEARS we've at least broken the downtrend, will hope that continues. Borrowers still need to be aware that rates are significantly higher than most of May, albeit better than they were late last week! I wouldn't object to a client who wanted to float till tomorrow, but beware Friday afternoons as pricing often suffers then." -Ted Rood, Senior Originator, Wintrust Mortgage

Today's Best-Execution Rates

  • 30YR FIXED - 4.00%
  • FHA/VA - 3.25% or 3.75% 
  • 15 YEAR FIXED -  3.125%
  • 5 YEAR ARMS -  2.625-3.25% depending on the lender


Ongoing Lock/Float Considerations

  • After rising consistently from all-time lows in September and October 2012, rates challenged the long term trend higher, but failed to sustain a breakout
  • EU and domestic economic data remain relevant to mortgage rates, but uncertainty over the Fed's bond-buying plans through the rest of the year is causing volatility 
  • The further we've progressed into 2013, the faster the swings have become
  • Fears about the Fed's bond-buying intentions were proven well-founded on May 22nd when rates rose to 1yr highs after the Fed confirmed their intention to taper bond buying programs sooner vs later
  • Just as the pendulum pushed far to the positive side of the rate range in April, the opposite swing occurred in May (now the worst single month for rates on record since 2008)
  • (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).