For weeks, weve discussed the prospects for increased volatility centered on todays economic calendar. The chances of a bigger move were much higher going into todays GDP data, and a bigger move is exactly what we got. Unfortunately, it was in an unfriendly direction. GDP was significantly stronger than expected, which caused an equally significant amount of weakness in the secondary mortgage market. With the data released at 8:30am and most lenders not putting out their first rate sheets until after 9am, mortgage rates shot rapidly higher right out of the gate. Bond markets (which include the mortgage-backed-securities or MBS that most directly affect mortgage rates) continued to weaken throughout the day, and never really leveled-off until 1-2pm. When MBS fall enough during the day, lenders will issue a reprice, which is just another way of saying rates are higher or lower effective immediately. Most lenders repriced to even higher rates in the afternoon. Things calmed down after that, and even the Fed policy announcement did little to change the tone for better or worse. So if we lost this much ground today, what should you do? First of all, in the grand scheme of things, todays losses were not that horrible. Granted, they may seem very horrible to you if you were considering locking yesterday and held off, but ultimately, the worst-case scenario is that your quoted rate will be an eighth of a point higher today. Some borrowers will merely see the increase in the form of higher closing costs. On average the most prevalently-quoted conforming 30yr rate for flawless scenarios moved up to 4.25% from 4.125%. One of those two rates has been in force for more than 2 months, and together, they sit at the lower end of 2014s range. The long term risk is that todays GDP marks a broad turning point for US rates markets (Treasuries, MBS, etc.). Theres an uncertain amount of balance brought to that risk from the ongoing slide in European rates markets. For instance, German government debt just hit an all-time low yield yesterday. If the trends that brought it there continue, it will be hard for US rates to move up too quickly. While theres no way to know how that will shake out, the short term risk lies primarily with Fridays jobs report. If its much stronger than expected, it will be a strong vote in favor of this weeks potential role as a turning point. Bottom line, the thesis remains intact this week: bigger risk, bigger reward. The Mortgage News Daily
Posted on: Wed, 30 Jul 2014 22:49:00 +0000
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