Mortgage rates have fallen substantially in the first week of 2015.  While a few of the most aggressive lenders have been able to offer top tier borrowers 30yr fixed rates at 3.75% for quite a while, today is the first day where it's decisively the average rate quote for top tier scenarios.  As of yesterday, it was still neck and neck with 3.875%.  This is the first time that 3.75% has been the dominant quote since May 21st 2013, one day before the taper tantrum began in earnest.

The move is a result of broader market momentum that was in place in early December.  That momentum went on vacation the same time everyone else did, and is simply getting back to business over the past 2 days.  It's not unfair to say it owes itself to global growth concerns centered in Europe.  Slumping stock markets, falling oil prices, and low interest rates are all merely symptoms of those broader concerns.

Days like today make lock/float decisions easy.  No one could fault you for locking the lowest rates in 19 months.  Indeed, on many occasions, such a decisive move to long-term lows is followed by a correction.  But if you're inclined to float for further gains, and are willing to lock at a loss if markets move against you, the recently strong momentum suggests such a loss would be limited.

Loan Originator Perspective

"Eurodrama is picking up steam helping mortgage rates here to be the best in well over a year. With the Eurodrama not likely to be solved anytime soon, i am continuing with my strategy of floating until you are within 15 days of closing, then locking. Anything closing in more than 15 days is floating in my pipeline." -Victor Burek, Open Mortgage

"The "official" first day of the new year brings ever improving mortgage pricing on the heals of ever lower oil prices and more European economic weakness. One keeps thinking we are going to see a bounce back worse in pricing at any moment so it certainly behooves those closing within 30 days or less to lock in and protect these gains. For the longer term, floating with caution and diligence seems safe but be nimble and ready to lock on a moments notice if necessary." -Hugh W. Page, Mortgage Banker, Seacoast Bank

"Mortgage bonds rallied today as equities took their largest one day losses in 3 months. This is a text book flight to safety trading and while it may carry on for more trading sessions it must be understood the gains mortgage bonds have gained can evaporate just a quickly. If your lender repriced today use this as an opportunity to lock in. If not you could wait for the morning for potentially better rate sheets. If you are a risk taker you can follow the trade and float for now. " -Manny Gomes, Branch Manager Norcom Mortgage

Today's Best-Execution Rates

  • 30YR FIXED - 3.75
  • FHA/VA - 3.25
  • 15 YEAR FIXED -  3.0-3.125
  • 5 YEAR ARMS -  3.0 - 3.50% depending on the lender

Ongoing Lock/Float Considerations

  • The hallmark of 2014 was a narrow range in rates.  Too many market participants bet on rates going higher in 2014, and markets punished that imbalance with a paradoxical move lower.  This continues to serve as a reminder that prevailing beliefs about where rates will go won't necessarily be correct simply because they're the most prevalent.

  • European bond yields trended constantly lower in 2014, thus playing a prominent role in keeping US rates lower than they otherwise might be.  Many feel that Europe will continue to slide until their central bank engages in US-style quantitative easing.  Some see this happening in early 2015.  In any event, we're looking for a turn in Europe, first and foremost, before worrying about the longer-term trend in bond markets being at serious risk of reversing.
  • Much of 2014 could be considered "sideways to slightly lower" in terms of mortgage rates.  All things considered, it actually has been a remarkably gentle drift lower.  Things became less gentle in mid October when rates briefly broke into the high 3's.  They came back for a more gradual, determined push into the 3's in December.  Some of the late-year strength was chalked up to an epic slump in oil prices.  This drags inflation expectations lower, which is a net-positive for interest rates, but it could be debated as to whether oil prices were a chicken or an egg in the global growth story.

  • As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.'  Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy.  It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).