11 February 2011 – I have begun to use a good news/bad news analogy when speaking with my clients about locking, which I feel provides a good characterization of the week that was in mortgage rates. A good number of these clients had loans in process and chose to follow my advice to lock over the last ten days. The good news for most of them this week is that they secured a mortgage rate at historical lows, the bad news is that the rate is at a 10-month high.
The week started badly coming off some significant increases at the end of last week on a jobs report generally accepted as positive. The exuberance over the lower unemployment rate and improving economy continued into this week as investors generally shied away from the bond market, which drove up pricing on Fannie Mae and Freddie Mac conforming rates. While there were some hopeful moments where pricing temporarily improved these were short-lived and nominal in effect on the retail market for mortgage loans.
It is very important right now for ratewatchers to shed their pre-conceived notions and emotional attachment to a given rate and to have realistic expectations. I often hear from my clients that they are going to wait for a certain mortgage rate. This is often somewhere in the 4% range. It is essential to let go of this phantom rate as it may never come. With things such as they are today, I would venture to say that they may never come.
Part of this upward movement comes from a generally positive view on the economy; unemployment is down. While different economists will argue as to the validity of the assessment, the number drives things like consumer confidence and we have seen both confidence and the associated spending recover. In addition to the macro-aspects of the financial markets is the reality of pricing. You should always understand that regardless of where mortgage backed securities should be trading, pricing may not follow the expected trend. Currently the secondary markets are not passing on to loan originators the pricing that we should see when the conditions are right better rates. The end result is, of course, a worse rate for the consumer.
My mortgage rate lock advice in unchanged from last weeks and can be summed up in a single word – LOCK. Regardless of the timeframe, there is just too much risk to roll the dice.Email This Post To a Friend.