Mortgage rates moved tentatively lower today.  The pace was only slightly better than yesterday when it was all but undetectable.  To those expecting more improvement based on trading levels in the bond markets that drive rates, it might seem a bit frustrating.  Understandably though, lenders tend to err on the side of caution ahead of an extended holiday weekend. 

But, why be tentative due to extended weekends?  In other words, what is it about the long weekend that makes mortgage rates a bit higher than they would normally be?  There are a few reasons, but one of the easiest to understand is the fact that markets can move more over a 3-day weekend, all other things being equal.  The greater the potential volatility, the greater the cost to protect against it.  That cost is passed on directly in the form of slightly higher rates.

The average lender is still quoting conventional 30yr fixed rates of 4.0% on top tier scenarios.  The rate itself hasn't changed this week, meaning recent improvements have been in the form of slightly lower closing costs.  A few lenders are at 3.875% and fewer still are at 4.125%.

Loan Originator Perspective

"Mortgage Rates improved slightly today. While I'm not ready to predict lower rates are immediately ahead in the coming week, I do think there is an opportunity to take a risk in floating to see if rates do in fact drop. The reason is that there at least appears to be some comfortability by investors with rates at these levels and further increase isn't as likely as it was over the past 2 weeks." -Brent Borcherding, brentborcherding.com

"Weak economic data has helped bonds rally today. With tomorrow being a shortened trading day ahead of a 3 day weekend, i think your choice is to either lock today, or wait until Tuesday. I find lenders tend to be more conservative with pricing heading into a holiday weekend. If you do want to lock today, i would hold off until as late as possible as some lenders have already improved their pricing from this mornings rate sheets. Tomorrow we do get inflation data which if hotter than expected would indicate a rate hike from the FOMC sooner rather than later. If you plan to float, hope the data tomorrow morning comes in lower than expected. " -Victor Burek, Open Mortgage

"Rates improved modestly today, but only enough to get us near Monday's closing levels. While we'll take the gains, at this point the movement isn't enough to get too excited about. We're still about 100 bps (1% of loan size) under late April's pricing, and need market sentiment to shift. With tomorrow's early close for the Memorial Day weekend, secondary desks often get conservative. Today looks like the time to lock in my opinion." -Ted Rood, Senior Originator

Today's Best-Execution Rates

• 30YR FIXED - 4.00%
  
• FHA/VA - 3.75
  
• 15 YEAR FIXED - 3.125-3.25
  
• 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

• 2015 began with a strong move to the lowest rates seen since May 2013.  The catalyst was Europe and the introduction of European quantitative easing.
  
  
• It's a highly uncertain time for global financial markets.  On the one hand, some believe we're in the midst of a race among world central banks to devalue currencies and lower interest rates.  Others believe that the global economy is turning a corner and rates will grind higher.  That had been creating a lot of volatility, which made for uncertain fluctuations from day to day.  But those periods of volatility have been interspersed by utter indecision where rates are effectively drifting sideways with no conviction and no desire to get off the fence.
  

• With European QE having now begun, we're on high alert for a big picture bounce in European economic data, sentiment, growth, and rates.  The more it looks like such a bounce is taking hold, the greater the risk that domestic bond markets and mortgage rates will also experience a big bounce higher.   Those risks are being compounded by speculation about the Federal Reserve raising rates by the end of 2015.
  
  
• We're in the middle of the 2nd big, ugly bounce so far this year and once again forced to confront the possibility that this will be a big-picture, long-lasting correction.  Until such a thing can be ruled out, Locking makes far more sense.
  
  
• 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).