Mortgage rates moved moderately higher today, giving back some of the impressive gains seen since last Thursday.  Most of that improvement came on Friday, following the shockingly weak employment data.  Thankfully, those gains are still intact for most lenders, and with the exception of yesterday, today's rates are the best since late November.  4.5% remains a more prevalent rate quote for the the best-qualified conforming, 30yr fixed scenarios (best-execution).

Today's movement was much ado about nothing.  Although we had an important piece of economic data this morning in the form of Retail Sales, it didn't motivate this weakness.  The bond markets that underlie mortgage rates were already on the move before the data and found other reasons to move afterward. 

One of those reasons is the stock market.  Before the financial crisis, stocks and bonds spent a lot more time being a lot more correlated than they have been in the past 5 years.  This has been especially true into (and now out of) QE3 which served to benefit both stocks and bonds (whereas they usually benefit at the other's expense).

The dynamic that exists in financial markets around the end of the year (and beginning of the next) can often make for large-scale shifts in investment preferences.  Into the end of 2013, bond markets (where strength benefits mortgage rates) were clearly in the doghouse.  Meanwhile, stocks soared to all-time highs right as trading ended for the year. 

So far in 2014, we'd been waiting for that dynamic to continue or reverse.  It didn't really happen in a clean way.  Bond markets reversed their weakness, but unconvincingly so, until Friday's jobs report.  Stocks didn't really get on board with this (by falling significantly) until yesterday.  The weakness in stocks benefited bonds/rates.

Now, a day after losing more than 20 points in the S&P yesterday, stocks are back up another 20 points today.  That same incremental weakness that had been helping interest rates yesterday is now a negative factor today.

Long story short, we're still settling in to 2014 trading.  Were bonds weak enough in 2013 that they could have a bit of recovery now?  That question would have seen more "yes" responses yesterday.  Today makes it less certain. 

The only real certainty is that market participants won't over-commit in either direction until they hear from the Fed at the end of the month.  That means yesterday is currently the low end of the rate range and Thursday is the high end (4.5% to 4.625%).

Loan Originator Perspectives

"All good things must come to an end, and our two day MBS winning streak did so resoundingly today. Good news for alert LO's and borrowers was that the pricing this AM was in line with yesterday's mid day; bad news was that virtually all lenders repriced worse this PM. Back to a locking bias, can't rely on rates improving in this market." -Ted Rood, Senior Mortgage Planner, Wintrust Mortgage

"Short lived improvements? As always locking at application is my recommendation. Cautious floating from yesterday did not hurt too much and I locked a couple loans earlier today. As they day has progressed, re-prices for the worse have been the norm so locking early today saved some pain. Your loan officer with MBS Live access is an asset and they will always have better timing than you or the disconnected loan officer." -Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc. NMLS # 107434

Today's Best-Execution Rates

• 30YR FIXED - 4.5%
  
• FHA/VA - 4.25%
  
• 15 YEAR FIXED -  3.5%
  
• 5 YEAR ARMS -  3.0-3.50% depending on the lender

Ongoing Lock/Float Considerations

• The prospect of the Fed reducing its asset purchases weighed heavy on interest rates for the 2nd half of 2013, causing volatility and generally pervasive upward movement.
  
• Tapering ultimately happened on December 18th, 2013.  Markets had done so much to come to terms with it ahead of time that it essentially just confirmed the the 6 month move higher in rates, but didn't make for another immediate spike higher.
• That said, we should assume that we're still in a rising rate environment on average with scattered pockets of recovery providing clear opportunities to lock.  
• The exceptionally weak employment data on January 10th provided on of these "pockets of recovery."  There are two ways to approach these.  More risk tolerant: set a line in the sand just slightly higher in cost than your current quote.  In other words, this could be either the next .125% higher in rate or simply a few hundred dollars more in closing costs.  Then commit to lock when your quote crosses above that line in the sand.  Less risk tolerant: lock on the day of or day after any significant move lower in rates.
• (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario.  There are many reasons a quoted rate may differ from 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).