Mortgage rates held mostly flat today, and that's an accomplishment! Lenders set mortgage rates based primarily on the prices of mortgage-backed-securities (MBS), which are part of the bond market, and bonds lost quite a bit of ground today. That would normally push mortgage rates higher, but today it did not. What's up with that?
First, understand that it's a fairly tumultuous time in financial markets at the moment. Stocks are off to the worst start of any year--ever--and bond markets have benefited as a result. In fact, it's not unfair to say that rates have been dragged lower against their will because apart from the heavy selling in stocks, there haven't been any other compelling reasons for 2016's stellar mortgage rate trend. One side-effect of being dragged lower against one's will is that the movement tends to be slower than it would be if both parties were on the same page.
Lenders have several incentives not to move rates too much lower too quickly. That sounds like a bad thing, and it usually is (albeit a necessary evil), but in cases where underlying markets suggest a more abrupt move higher in rate, it also means that lenders have some cushion to absorb the market move. As such, most lenders continue quoting conventional 30yr fixed rates in the 3.75-3.875% range on top tier scenarios. The bigger concern would be if this potential shift in the 2016 trend (stocks and bond yields bouncing higher) is still looking shifty tomorrow.
Loan Originator Perspective
"Rates rested, changing only minimally today, as world markets continued to access future economic growth. A few lenders repriced worse midday, but the changes were marginal, and rates are still near October's lows. For now, I'll consider floating new applications, while locking those nearer to closing and watching markets intently. As always, if you're happy with current pricing, lock your loan and remove all risk!" -Ted Rood, Senior Originator
"If there was ever a good day to lock today looks to be it. I may be putting my foot in my mouth by saying this but I do not see rates improving further in the next 30 days. Longer term I do see rates improving but if you are closing in 30 days or less lock in and take all risk off the table." -Manny Gomes, Branch Manager, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 3.75 - 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).