Mortgage rates moved higher today, even after many lenders offered mid-day improvements in the afternoon.  Bond markets (which underlie rate movement) reacted negatively to this morning's economic data.  The biggest report of the morning--Retail Sales--was slightly weaker than the median forecast.  Typically, this would HELP rates.  But some traders were expecting the number to be even weaker compared to the forecast (yes, this is like a forecast of a a forecast).  

In separate data, several inflation metrics came in stronger than expected.  Given the fact that markets are fairly worried that inflation will pick up under the Trump administration, it's not unfair to expect rates to react when data suggests inflation (or inflation expectations) may already be moving higher.

4.125% is still the most prevalent conventional 30yr fixed rate on top tier scenarios, but several lenders moved back up to 4.25%, making today's "effective rates" (which take closing costs into consideration) the highest of the week.

Overall this week served as a leveling-off period after a nice little recovery from late December.  Next week, chances increase that we'll break to one side or the other.  Because the move toward lower rates would be inherently limited by the fact that markets have to wait a long time before finding out if their Trump-related inflation/growth fears are justified, it makes sense to favor locking any time a temporary correction looks to have run its course.  That's either today, or more conservatively, next Tuesday, on the chance rates are still moving higher.  Markets are closed Monday for MLK Day. 

Loan Originator Perspective

Markets giving away much of the recent gains, but still remaining under key support levels.  It has been tempting to consider floating, but based on the fact that the market has been resisting moving lower the recommendation is to lock in.  We are getting closer to feeling comfortable with  the current range of 2.34% - 2.44% on the 10 YR bond, a more risk tolerant or sophisticated individual may float as we approach the higher echelon and lock as we approach the lower, but I personally do not see the overall gain meriting the risk if we break the support level of 2.44%.   -Gus Floropoulos, VP, The Federal Savings Bank

Today's Best-Execution Rates

  • 30YR FIXED - 4.125%
  • 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

  • Rates had been trending higher since hitting all-time lows in early July, and exploded higher following the presidential election
  • Some investors are increasingly worried/convinced that the decades-long trend toward lower rates has been permanently reversed, but such a conclusion would require YEARS to truly confirm

  • With the incoming administration's policies driving a large portion of upward rate momentum, mortgage rates will be hard-pressed to return to pre-election levels until well after Trump takes office.  Rates can move for other reasons, but it would take something big and unexpected for rates to get back to pre-election levels. 
  • We'd need to see a sustained push back toward lower rates (something that lasts more than 3 days) before anything less than a cautious, lock-biased approach makes sense for all but the most risk-tolerant borrowers.  The beginning of 2017 may be bringing such a push, but there's no telling how long it will last.
  • 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).