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Mortgage Rates Win Heroic Battle; Still Losing The War

December 6th, 2013 11:33 PM by Jackie A. Graves, President

If we examine today's activity in a vacuum, Mortgage ratesfought and won a heroic battle in the sense they were able to hold steady to slightly stronger despite contending with a stronger-than-expected Employment Situation Report--something that almost always sends rates higher.  We alluded to this yesterday in pointing out the "morbid silver lining" that rates had recently risen quickly enough that the reaction to a stronger jobs number today wouldn't play by the normal rules.  The extent to which this happened surpassed our expectations of resilience, but the resilience likely is notindicative of a fundamental shift toward lower rates.

At the end of the day, the most noticeable departure from the normal jobs report script was seen in the prices of MBS, the mortgage-backed-securities that underlie and inform mortgage rates as opposed to the rates themselves.  It's not that rates didn't improve.  Some lenders indeed did not, but most were a modest amount lower than yesterday.  This brings the average quote back somewhere between 4.625 and 4.5 percent for the most ideal conforming 30yr Fixed scenarios  (best-execution).

Meanwhile, US Treasuries definitely did not improve today.  This is a clue about overall momentum in the bond market.  Both MBS and Treasuries operate in the bond market, but Treasuries are the benchmark.  They're more universally traded, more even-keeled, and more indicative of interest rate trends.  MBS follow Treasuries like a hyperactive dog might follow along on a leash--sometimes leading, pulling ahead, and other times lagging behind. 

Mortgage rates are directly affected by MBS, so it's perfectly reasonable to see rates improve a bit today despite Treasuries holding steady, but that improvement is a factor of MBS tightening up their levels versus Treasuries as opposed to overall strength in bond markets. Unfortunately, it will take overall strength in order for rates to push very far in the other direction. 

This doesn't necessarily mean that rates are destined to immediately change course and shoot higher on Monday.  Anything can happen in financial markets of course, but the point is that until and unless something fundamentally changes, the long-term course of rates is higher.  There have been and will continue to be pockets of recovery, and these represent good opportunities to lock.  When those opportunities arise, it's tempting to hope the recent improvement means more improvement will come.  The more you hold out for that, the riskier it is.

Posted in:General
Posted by Jackie A. Graves, President on December 6th, 2013 11:33 PM

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