Mortgage rates fell at their fastest pace of the year following today's rate hike announcement from the Fed.  If you're wondering why mortgage rates fell while the Fed's rate moved up, you're not alone.  Fortunately, the explanation is simple.  

Financial markets had already fully accounted for the chance that the Fed would hike rates today.  They'd even gone a step further an begun to account for a faster pace of future rate hikes.  And it was that future outlook that allowed for our pleasant surprise.

As it turns out, the median forecast among Fed members didn't see the Fed Funds rate ending the year any higher than the previous batch of forecasts (both for 2017 AND 2018).  While there was no way to know exactly how much markets had prepared for the forecasts to move higher, it was certainly more than "not at all."   In other words, rates had recoiled in fear over the past few weeks, expecting to see a very scary monster today.  When the monster turned out to be cute and cuddly (relatively), rates calmed down quickly.  

The average lender offered mid-day improvements that brought rates 0.125% lower, on average.  In terms of conventional 30yr fixed rates, most lenders are back down to 4.25% now on top tier scenarios.

From a lock/float standpoint, this improvement could be considered one of those "tactical opportunities" referenced below.  The only question is how long to let it ride.  The answer depends on how much of today's improvement you'd be willing to give up.  If, for instance, you'd be willing to bet some of today's improvement for the chance to see even more, it could make sense to give things a day or 2 to play out.  For less risk-tolerant borrowers, there's nothing wrong with locking today considering lenders actually did a great job of passing along bond market gains.

Loan Originator Perspectives

FOMC has come and gone and bonds are liking the statement.   If you didn’t lock yesterday, job well done as pricing should improve.    As always, when bonds rally lenders take their sweet time before they pass along gains.   As long as Yellen doesn’t ruin things during her press conference, I would most definitely float til tomorrow morning. -Victor Burek, Churchill Mortgage

Bond markets reacted positively to today's Fed rate increase, as it surprised absolutely no one.  Chairwoman Yellen's press conference later this PM represents another opportunity for markets to divine the Fed's economic outlook and pace of future rate hikes.  No reason to lock now, as lenders haven't yet passed along this afternoon's gains.  The rest of the day, and next few days, will certainly be interesting, let's hope bonds continue to rally. -Ted Rood, Senior Originator

Today's Best-Execution Rates

  • 30YR FIXED - 4.25%
  • 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

  • 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

  • Still, it would take something very big and unexpected for rates to make a big, sustained push back toward pre-election levels.   Even then, it would take time to confirm such a shift.
  • With fiscal and monetary policy paths both clearly putting pressure on rates, at least one of those would need to make a noticeable change before anything but a cautious, lock-biased approach makes sense as a baseline strategy.  Floating should only be considered as a tactical opportunity to capitalize on temporary corrections. 
  • 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).