Mortgage rates held steady today, on average, despite moderate improvements in underlying bond markets.  Typically, bond market improvement results in comparable improvement for mortgage rates.  The groundholding is the latest evidence of massive anxiety on the part of lenders ahead of tomorrow's big Fed announcement.  Lenders don't want to be on the hook for low rates if the Fed happens to send rates screaming higher tomorrow.

To reiterate yesterday's point, we already know the Fed will hike.  Markets are also expecting the Fed to accelerate its forecasts for future rate hikes (this is what pushed rates higher in December, by the way--not the rate hike itself).  Unfortunately, we can't pinpoint exactly how well-prepared markets are for such an acceleration.  

We won't know if the Fed's actual forecasts are faster or slower than expected until we see how markets react tomorrow at 2pm ET.  If the Fed accelerates less than expected, there is still a chance for mortgage rates to hold the line at the current ceiling (4.375% for top tier 30yr fixed scenarios for the average lender).  If forecasts outpace expectations, rates could move higher quickly.  

Loan Originator Perspectives

Many clients are calling wanting to lock in before tomorrow’s Fed hike.   I have advised clients, a rate increase is already priced in.  Tomorrow’s movement in rates will be based on the Fed members outlook on future rate hikes.  If Fed members are perceived as more bullish, the trend of rates moving higher will continue.  If they are dovish, then rates should rally back some, but don’t expect huge gains.   At this point, more risk than to gain by floating.  So my advice is to go ahead and lock in today. -Victor Burek, Churchill Mortgage

Bonds bounced back, slightly, today, as investors awaited tomorrow's Fed announcement.  It's a virtual certainty they will raise the overnight rate; the bigger questions are the projected path for future increases and economic growth estimates.  With rates losing ground steadily for several weeks, it's tough for me to get excited about floating here.  Yes, we may be nearing the top of our new rate range, but until I see more evidence of that, I'll continue to recommend locking early. -Ted Rood, Senior Originator

Today's Best-Execution Rates

  • 30YR FIXED - 4.375%
  • FHA/VA - 4.0-4.25%
  • 15 YEAR FIXED - 3.5-3.625%
  • 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. 
  • 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).