Mortgage rates continued a trend of small, steady improvements into the new week today.  This marks the 4th straight day of a winning streak that began last Wednesday when the Fed announced its much-anticipated rate hike.  If the notion of a Fed rate hike followed by falling mortgage rates doesn't make sense, don't worry.  The Fed rate hike has drawn out lots of analysis on the implications for other interest rates, and much of it is missing two critical points.

First, mortgage rates are not directly connected to the Fed Funds Rate.  In fact, we've even seen them move in the opposite direction for months in the past.  That doesn't mean rates went lower every day.  There was plenty of variability day-to-day, but at the end of one particular 4 month period, mortgage rates had moved 0.5% lower while the Fed Funds Rate moved 2.0% higher. 

Second, much like Treasury yields, mortgage rates are free to move from moment to moment based on bond market trading.  As was the case in the example noted above, they've had plenty of time to prepare for the well-telegraphed Fed rate hike (by moving preemptively higher).  As such, the decrease in mortgage rates since the Fed rate hike can be thought of as a normalization with the recent spike being akin to bracing for impact.

Loan Originator Perspective

"Rates, more likely than not, will be flat or moving slightly in either direction this week.  It's a Holiday week and many traders have already checked out.  The ones who haven't will be doing so soon, so I would not expect much, if any movement outside of a very small range over the coming days.  This being said, if you have a new application in place and/or are closing outside of 30 days, there really is no reason to lock at this point.  I'd wait until after the Holiday season and make sure your loan officer is in the know on MBS and TSY prices and simply ask them to reach out to you if for some reason a big move occurs in the coming days, which I feel is highly unlikely.  Have a happy and safe Holiday season!!"-Stephen Chizmadia, Mortgage Advisor, iServe Residential Lending LLC.

"Rates trickled lower today amid typical Christmas Week reduced trading volume.  The next two weeks promise more of the same, as it's unlikely any major moves higher/lower will emerge.  During times like these, it's important for floating borrowers to define their lock goals.  Are you looking for an improved lender credit?  If so, about how much?  Discuss your situation with your loan officer, so both of you will know when to, or not to, lock." -Ted Rood, Senior Originator

Today's Best-Execution Rates

• 30YR FIXED - 4.0-4.125%
  
• 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

• 2015 has been largely about global interest rates rising unevenly from a long-term low brought about by the onset of quantitative easing in Europe.  European rates are most directly affected, but rates in the US have often taken cues for similar movement. 
  

• As the European rate rally fizzled out, the Fed began telegraphing its intent to hike rates.  While the Fed rate doesn't directly affect mortgages, the two are still loosely connected over time.  They become more disconnected when the economy begins to contract.  This helps longer term rates like mortgages move lower even while the Fed rate his steady or rising.
  
  
• The Fed finally hiked on December 16th, but there was no immediate reaction in mortgage rates.  Some think that an economic contraction might not be too far away.  Others are concerned about a lack of inflation (which is good for longer term rates like mortgages).  Bottom line: the Fed rate hike has not been the death knell for low mortgage rates that many feared it would be, although the near term range is uncertain and rates could be more volatile than normal as we wait for a new trend to emerge.
  
  
• 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).