Mortgages Rates reversed a recent trend of gradual improvement, moving higher today after a better-than-expected read on employment from this morning’s Jobless Claims report as well as news that the ECB will swap out their Greek government bonds this weekend. 30yr Fixed Conventional Best-Execution Rates continue to operate in 3.875% territory on average, and the closing costs associated with those rates had been nearing the lower end of their historical range. While 3.875% Best-Execution remains intact today, the cost associated with obtaining them is higher on average.
Additional reading: A previous post with more detailed discussion about Best-Execution calculations.
This morning’s Jobless Claims report showed 348k new claims this week versus an expectation of 365k. When data indicates that the labor market is faring somewhat better-than-expected, bond markets tend to move higher in yield. It’s not always a linear relationship, but is generally true, and in line with the market’s reaction to the data. But the domestic economic situation is scarcely the biggest contributor to the current interest rate environment.
Concerns over the potential fallout and/or inability to contain the European debt crisis are the key factors keeping interest rates at historically low levels. While Treasuries are the direct beneficiaries of that turmoil, MBS (the “mortgage-backed-securities” that most directly influence mortgage rates) get to come along for the ride. Today’s news that the European Central Bank (ECB) would swap out its Greek bond holdings over the weekend basically amounts to an injection of capital into Greece’s balance sheet (read more about it HERE if you’re interested). A lower debt burden for Greece helps alleviate some of the fears of the aforementioned fallout. Since those fears are keeping rates lower, when the fears lessen, rates respond by moving higher.
Another aspect of today’s news from Europe was that the group of finance ministers tasked with voting on the current Greek bailout is set to meet again on Monday to potentially approve that bailout. If that happens, then today’s ECB actions grease the skids for Greece to negotiate and finalize a deal with its private sector bond-holders. And if ALL of that happens before Tuesday morning, it will probably have a fairly negative impact on rates.
Now… Of course we have seen time and time again that things rarely happen exactly as expected when it comes to the EU debt crisis. So we certainly aren’t planning on any catastrophic spike in rates and more so than we plan on a nice improvement. Both are possible. But the fact that it COULD happen, and on a market holiday (Monday is President’s Day), means that Traders are essentially heading into 3-day weekend with big potential market movement waiting on the other side. That could cause them to have a more defensive stance than they otherwise might Tomorrow. All that to say, it’s unlikely that we’ll see a noticeable bounce back tomorrow unless we get some new info out of Europe that changes the expectation for the weekend bond swap and Monday vote.
So while costs are indeed higher today, Best-Execution rates are still at their all time lows and we’d advocate thinking more about protecting yourself from risks in the near term future than about lamenting missed opportunities if you decided not to lock yesterday. Sure, rates could get lower next week and it would be natural to regret locking today if that turns out to be the case, but it wouldn’t compare to the level of regret that would come from NOT locking today and seeing rates move sharply higher next week. We say this NOT to advocate locking vs floating, but rather, if you were inclined to lock, not to second guess that decision simply because yesteray’s rates were better.
Today’s BEST-EXECUTION Rates
- 30YR FIXED – 3.875%
- FHA/VA -3.75%
- 15 YEAR FIXED – 3.25%
- 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
- There are technical reasons for that as well as fundamental reasons
- Lenders tend to get busier when rates are in this “high 3’s” level
and can throttle their inbound volume by raising rates or costs.
- While we don’t necessarily think rates are destined to go higher,
given the above facts, there seems to be more risk than reward regarding
- But that will always be the case when rates operating near historic lows
- (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).