Mortgage rates continued drifting slightly higher after a strong move to 19 month lows on Tuesday.  The caveat is that today's rates are only higher compared to the past 2 days.  They're still better than anything else seen before this week.  The most prevalently-quoted conforming 30yr fixed rate remains 3.75%, but with slightly fewer instances of 3.625% today.  FHA/VA rates remain plagued by volatility depending on the lender due to the announcement of a drop in annual mortgage insurance premiums. 

The problem is that the industry doesn't yet know exactly how the changes will be implemented.  Investors that buy and sell the bonds that back those mortgages recoiled in fear yesterday because of the potential impact on the bonds' value.  This caused changes in loan pricing specifically for FHA, VA, and USDA loans.  Some lenders have lowered their guard a bit, but many haven't.  As of this evening, we're still waiting on official word from HUD on the changes.

Tomorrow brings the normally-important Employment Situation Report.  Historically, this is the single biggest market mover each month in terms of scheduled economic data.  While markets will certainly react immediately following the data, the ensuing hours are less likely to see the same sort of ongoing reaction.  Reason being: a strong labor market is the status quo at the moment.  A big number in terms of the headline payroll creation isn't the surprise it used to be and a bad number would be taken with a grain of salt.  The focus is generally more on Europe, and it will take big news or big market movements there to motivate domestic bond markets (and thus, mortgage rates) to more inspired movement.  All that having been said, rates are still close enough to long-term lows that locking is a no-brainer for all but the most aggressive risk-takers or folks who otherwise have plenty of time to close and don't mind losing ground if the market happens to move against them.

Loan Originator Perspective

"In usual fashion, MBS have given up some of the recent gains ahead of the payrolls report on Friday. It seems the usual process is for MBS to sell off ahead of the report, then regain the losses the following week. I think that trend will continue, so my lock/float advice remains the same. If you are within 15 days, go ahead and lock as today's rates are only slightly worse than the best pricing we have seen in over a year and half. I would float everything closing in over 15 days." -Victor Burek, Open Mortgage

"Rates lost a little more ground today, as our 7 consecutive days of gains fade away. No definitive moves, and as of 2PM, no lenders had repriced per MBS Live. Tomorrow brings the January jobs report, which will influence rates if it is surprising strong or weak. The question isn't whether the market's motivation for lower rates (EU issues, oil prices, slowing world economies) are solved, but how long it will be before another crisis pushes rates down. Loans near closing should probably be locked, those with longer time frames need to decide how much risk they're comfortable with."-Ted Rood, Senior Loan Originator

"A bit more profit taking today, still relatively tame considering the recent move down in rates. Tomorrow brings the single most important data piece for rates this month, however it may not matter. The focus continues to be in Europe and oil. Locking in is still a smart move here for loans within 15 days, longer term should consider locking, however time may work out to b your friend as I expect rates to see another leg down in the near future." -Constantine Floropoulos, Quontic Bank

Today's Best-Execution Rates

  • 30YR FIXED - 3.625-3.75
  • FHA/VA - 3.25
  • 15 YEAR FIXED -  3.0-3.125
  • 5 YEAR ARMS -  3.0 - 3.50% depending on the lender

Ongoing Lock/Float Considerations

  • The hallmark of 2014 was a narrow range in rates.  Too many market participants bet on rates going higher in 2014, and markets punished that imbalance with a paradoxical move lower.  This continues to serve as a reminder that prevailing beliefs about where rates will go won't necessarily be correct simply because they're the most prevalent.

  • European bond yields trended constantly lower in 2014, thus playing a prominent role in keeping US rates lower than they otherwise might be.  Many feel that Europe will continue to slide until their central bank engages in US-style quantitative easing.  Some see this happening in early 2015.  In any event, we're looking for a turn in Europe, first and foremost, before worrying about the longer-term trend in bond markets being at serious risk of reversing.
  • Much of 2014 could be considered "sideways to slightly lower" in terms of mortgage rates.  All things considered, it actually has been a remarkably gentle drift lower.  Things became less gentle in mid October when rates briefly broke into the high 3's.  They came back for a more gradual, determined push into the 3's in December.  Some of the late-year strength was chalked up to an epic slump in oil prices.  This drags inflation expectations lower, which is a net-positive for interest rates, but it could be debated as to whether oil prices were a chicken or an egg in the global growth story.

  • 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, 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).