Mortgage rates inched slightly lower today, adding to an already impressive string of improvements in the new year.  Rates typically take most of their cues from economic data, but that hasn't been the case this week--at least not in the traditional sense.  Instead of US economic data being the center of attention, it's instead been the volatility in global stock markets--especially China's.  Successive days of heavy losses have pulled down stock prices worldwide, and sent investors fleeing for safer havens.

One of the quintessential safe-haven investments is the bond market.  This includes things like US Treasuries as well as the mortgage-backed securities that dictate mortgage rates.  In a nutshell, this is why rates have been able to perform as well as they have heading into the beginning of the year. 

There is a curve-ball though.  Simply put, if it weren't for the heavy losses in stocks and the generally high level of global market anxiety, there's plenty of reason to suspect rates wouldn't be nearly as interested in moving lower.  In fact, they're increasingly looking opposed to the idea in that their descent is slowing despite stock prices falling more rapidly.  The risk is that a bounce in stocks--even if only temporary--could serve as the cue for rates to make the bounce higher that it seems like they're waiting to make.

Tomorrow morning's Employment Situation is the most important piece of economic data on any given month.  It will provide the ultimate test to see if rates are truly willing to ignore the economic data and continue following stock prices.

Loan Originator Perspective

"Equities tanked again today after further turmoil in China's market.  Bonds gained, but only slightly.  The fact we didn't rally more in what should be a global "flight to safety" shows rates are reluctant to drop much further.  I've been in a locking mode for loans closing within 30 days, and will continue to be until we get definitive rate trend downward.  NFP is tomorrow, only those who want to bet on a tepid jobs report should be floating here." -Ted Rood, Senior Originator

"More help from China has helped bonds improve once again today.   With non farm payrolls hitting tomorrow morning, it would be wise to strongly consider locking in today.   It is always extremely risky to float through the payrolls data and ADP on Wednesday suggests NFP will be quite strong which isn't good news for mortgage rates." -Victor Burek, Churchill Mortgage

"I've consulted with my floaters over the past two days and everyone, but one has agreed locking is best today, given NFP on Friday. With a very strong ADP print on new jobs created Wednesday,  China is bailing us out right now.  Beware of tomorow.  If BLS doesn't agree with ADP, great - float down.  But, if BLS concurs with job creation, Friday could be very red and painful for borrowers and loan officers alike." -Matt Hodges, Charlottesville Sales Manager, Presidential Mortgage Group

"The mortgage bond rally may have ran it course for even with an equity selloff bonds were not able to gain any pricing.  I would be locking in everything especially ahead of tomorrows jobs report which has the ability to punish rates." -Manny Gomes, Branch Manager Norcom Mortgage

Today's Best-Execution Rates

  • 30YR FIXED - 4.00%
  • FHA/VA - 3.75%
  • 15 YEAR FIXED - 3.25%
  • 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).