Mortgage Rates Shoot Up Today

What Happened? Today was one of those days we hate to see coming. Actually, there is a sliver of good news in reasons behind today's market move. The 30 Year FNMA 4.0% bond was down 206 basis points today. This is a huge move to the negative and caused mortgage rates to sky rocket throughout the day. Usually, when there is such a strong move one way or the other, the market tends to overreact and come back the other direction shortly thereafter. However, at this point, the damage has been done to our mortgage rates and we'll have to wait and see what happens in the coming days. Perspective To put things in perspective, the average 30 year fixed rate mortgage, according to Freddie Mac, last week was 4.82%. That is about where rates started out this morning. Right now, the best 30 year fixed rate loan with 1% origination and no discount points and a 750 credit score is 5.375%, a one day increase of .5% in rate. This morning, Alabama Housing Finance Authority's Step Up rate was 5.0%. It ended the day at 5.625%. Why? Why the dramatic increase? A few reasons, including: 1) Bill Gross from PIMCO, the largest bond insurer, questioned the AAA credit rating of the U.S.; 2) Credit Suisse said that the Fed may be slowing down their purchase of mortgage bonds; 3) Better than expected Consumer Confidence yesterday; 4) A slightly better Existing Home Sales Report today. These factors, along with the notion that inflation could be a problem if the economy turns around, sent the bond traders into a selling frenzy. So, What Next? Anyone who has been pre-approved over the past couple of months should re-evaluate their loan approval if the rate in which they were qualified was under 5.5%. A .5% difference in rate could be the difference in an approval or a decline in today's underwriting environment. Secondly, I'd recommend buyers that are looking at purchasing right now evaluate the market carefully to see if we are going to see any improvement in rates. NOBODY knows right now whether or not rates will come back down, stay the same, or go higher. The next couple of days will be key to knowing which direction the market decides to head. I'm usually advising my clients to lock ASAP and take a good rate while you can get it. I'll probably take a day or two to see what the coming trend may be before advising my clients to wait to lock or go ahead and cut their losses while they can. Third, what happened today is exactly what we've been telling clients may happen at any time. People that were waiting for rates to fall below 4.5% before they locked are going to be very disappointed. Rates never were going below 4.5% and we will look back one day and remember this period where rates were in the 4's for an extended period of time. If you have clients or friends who are waiting to buy a home based on rates falling a quarter percent, please remind them that they are gambling and that rates are just as likely to go up .5% as they are to drop another .25%. The lesson: don't be greedy and take a great rate while you can get it. We may be looking at a situation where someone could have locked at 4.875%, but wanted to wait for 4.5%, and ended up with 5.5%.