Mortgage rates moved higher today, but remained near the lowest levels in more than 2 months.  Friday's drop was uncharacteristically sharp and put rates in a position to break 7 month lows had today gone the other direction.  Most lenders are quoting conventional 30yr fixed rates of 3.875% on top tier scenarios.  4.0% is the next most prevalent quote with only a select few of the most aggressive lenders down at 3.75%.  All of these assume top tier scenarios.

Mortgage rates are most directly affected by the prices of mortgage-backed-securities (MBS) which generally move like 10yr US Treasuries.  Both are considered part of the bond market.  Another generality is that bond markets tend to benefit when stock markets are falling.  While this isn't always the case, it has been a driving force so far in 2016.  In other words, as stock prices have fallen dramatically, bond markets have improved.  That means more investors are buying bonds like Treasuries and MBS.  When MBS improve, mortgage rates fall.

With all that in mind, today's higher rates make sense considering the fact that major stock averages are closing at slightly higher levels compared to Friday.  Stocks didn't bounce in any major way, so it stands to reason that the bounce in mortgage rates was similarly low-key.  Everyone wants to know if the overall pain in stocks (and thus, mortgage rate resilience) will continue, but there's no way to know.  It's clear that every time it looks like stocks are considering a bigger bounce that rates quickly get in position for a more meaningful move higher.  Rates would be in more trouble if stocks happened to make bigger gains tomorrow.

Loan Originator Perspective

"Rates hung tough today, nearly unchanged from last week.  There was no domestic data of note released, but China's GDP was the lowest in 25 years, and did nothing to promote investor confidence in the global economy.  With rates as stable as they've been, I'm not adverse to floating short term in hopes of capturing improved pricing, as long as borrowers' available funds and risk tolerance permit.  It would take a calamitous event for rates to drop much further, but you never know!" -Ted Rood, Senior Originator

Today's Best-Execution Rates

  • 30YR FIXED - 3.875%
  • FHA/VA - 3.5%
  • 15 YEAR FIXED - 3.125%
  • 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

  • The Fed finally hiked on December 16th.  The baseline implication would be steady pressure toward higher interest rates, but there's been "a catch" so far in 2016
  • Global financial markets have come into the new year in distress.  Major stock indices are plummeting around the world, and investors are seeking shelter in the bond market.  When investor demand for bonds increases, rates fall.

  • So we're left with a move toward the lowest mortgage rates in 7 months despite the Fed having just begun its hiking cycle.  This paradoxical trend can continue as long as global risk markets continue selling-off.  The big risk is for a big bounce if global risk markets happen to find their footing. 

  • 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).