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Mortgage Rates Begin New Year Under Pressure

By: Matthew Graham
Posted Tue, Jan 2 2018, 5:02 PM

Mortgage rates are theoretically supposed to go higher in 2018.  Any upward pressure on economic growth or inflation (courtesy of the tax bill, perhaps?) is bad for rates, all things being equal.  Economic growth increases market returns, forcing rates to move higher in order to keep up.  Inflation erodes the value of bonds that underlie rates, meaning investors want higher rates of return if they're going to buy into the "fixed income" (aka "bond") market.

To be fair, this has been the expectation for several years now, depending whom you ask, but the inflation bogeyman has yet to materialize.  Additionally, bond market investors haven't seemed too troubled by the pace of economic growth.  That's allowed for outright defiance of the average prediction, which has generally called for much higher rates than we've actually seen.

The first trading day of 2018 asks fans of low rates: "are you sure about that?"  Bond markets weakened somewhat quickly, thus raising the risk that early 2018 would indeed follow-through on the promise that's been broken time and again when the average 30yr fixed rate has attempted to move up from the 4% level.  All that having been said, it's still too soon to glean any definitive takeaways about new year market momentum.  All we have now is a warning shot--a reminder of the risks that have supposedly been in place for years.

Following this morning's quick move into weaker territory (in bond markets) several lenders adjusted mortgage rates higher.  Lenders who didn't issue a mid-day reprice are increasingly likely to pass along the weakness with tomorrow morning's rate sheets.

Loan Originator Perspectives

Bonds markets retreated today, as stocks continued their seemingly ceaseless ascent. Treasury yields are nearing levels last seen in spring 2017. I'm staying defensive, definitely locking borrowers within 30 days of closing, and considering 45 day locks when germane to the loan. -Ted Rood, Senior Originator

Today's Most Prevalent Rates

  • 30YR FIXED - 4.0%-4.125%
  • FHA/VA - 3.75% 
  • 15 YEAR FIXED - 3.375%-3.5%
  • 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

  • 2017 had proven to be a relatively good year for mortgage rates despite widespread expectations for a stronger push higher after the presidential election in late 2016. 

  • While rates remain low in absolute terms, they moved higher in a more threatening way heading into the 4th quarter, relative to the stability and improvement seen earlier in 2017

  • The default stance for now is that this trend toward higher rates has the potential to continue.  It will take more than a few great days here and there for that outlook to change.

  • For weeks, this bullet point had warned about recent stability inviting a bigger dose of volatility.  That volatility is now here.  As such, locking is generally the better choice until the volatility is clearly dying down.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders.  The rates generally assume little-to-no origination or discount except as noted when applicable.  Rates appearing on this page are "effective rates" that take day-to-day changes in upfront costs into consideration.

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