Mortgage rates moved lower today as financial markets roared back to life after the winter break.  In this age of ever-increasing automation and digital connectivity, it would be easy to assume that financial markets continue to hum along in the background even as the rest of the world takes some time off during the holidays.  The truth is that financial markets are greatly affected by the Christmas/New Years holiday season and that's readily apparent in today's mortgage rates.

Mortgage rates are primarily a function of mortgage-backed-securities (MBS) prices.  Most days, there is a stable connection between the two (in that a certain amount of movement in MBS tends to correspond with a certain amount of movement in mortgage rates).  If we were to solely base our assumptions on that relationship, rates would be only marginally better today--somewhere near those seen on December 28th.  Instead, rates moved noticeably lower--closer to those seen on December 21st.

The x-factor here is the human element.  Strategies vary, but in general, folks in charge of setting rates for lenders tend to be more conservative heading into the holidays.  If MBS prices are in decent shape after the holiday season, lenders are able to get back to where they would have otherwise been fairly quickly.  As such, it's no major surprise to see rates right back where they were a few days before the holidays kicked into high gear.

Loan Originator Perspective

"As I suspected last week, bonds did rally today, albeit not as much as they should have, given equities' losses.  Once again, we're basically cemented in our current pricing range.  At this point, we're still closer to the high side of rates than the low, so we may see better pricing the next couple of days.  Friday, however, is the December NFP report, which is a huge wild card.  Float until Thursday if you like to gamble a little.  Only those who love "action" should float into Friday." -Ted Rood, Senior Originator

"Nice little rally today thanks to a global sell off of stocks that started with very weak manufacturing data out of China.   If you floated over the long weekend, your rate sheets should reward you today.   With today's gains, it would be wise to consider locking especially if you are within 30 days of funding.   The trend still isn't our friend, so this could turn around very quickly." -Victor Burek, Churchill Mortgage

"Mortgage bonds started the new year off right rallying at the open of trading.  This was largely due to the global sell off sparked by the manufacturing date released in China.  Bonds however did not hold their gains which worries me a bit and puts me in lock mode.  While it may be possible for rates to continue to improve the risk at this level may not be worth taking." -Manny Gomes, Norcom Mortgage

Today's Best-Execution Rates

  • 30YR FIXED - 4.00-4.25%
  • FHA/VA - 3.75%
  • 15 YEAR FIXED - 3.25-3.375%
  • 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

  • In 2015 global interest rates rose unevenly from a long-term lows brought about by the onset of quantitative easing in Europe.  European rates moved most (first lower, then higher), but rates in the US, including mortgage rates, are always taking some of their guidance from the global picture.
  • Just as European rates were bouncing at all-time lows, the Fed began talking up its plans to hike its policy rate (Fed Funds Rate).  While the Fed rate doesn't directly affect mortgages, the two are generally connected in the long run.  They become more disconnected when the economy begins to contract (because Fed policy is slower to respond to changes in the economy).

  • The Fed finally hiked on December 16th.  This implies a constant underlying pressure toward higher interest rates--as long as the economy doesn't begin to contract.  Opinions vary greatly as to when we'll see the early signs of the next economic contraction.  Some would argue we're already seeing them.  This, along with persistently low inflation, has helped rates avoid taking a big hit from the Fed rate hike, though we're still waiting for the first major trend of 2016 to emerge

  • 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, conventional 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).