Mortgage rates moved moderately lower today, as financial markets positioned themselves for an important announcement from the European Central Bank (ECB) tomorrow regarding the possibility of tapering its asset purchases.  Much like the market movement seen in late 2013 following the Fed's "tapering" message, stocks and bonds (yields) moved in opposite directions (i.e. stock prices higher and bond yields/rates lower).  This occurs because central bank purchases are like a rising tide that lifts all ships.  The more a major central bank is spending, the better things generally are for both stocks and bonds.  This runs counter to the typical intraday stock/bond relationship where yields/rates tend to move in the same direction as stock prices.

So why did we see a move ostensibly inspired by central bank policy before the actual announcement?  To oversimplify, traders have been betting on the ECB tapering.  This makes stocks lower and rates higher than they otherwise would be.  But traders don't want to have open positions heading into the day of the announcement.  In other words, they moved back to the sidelines, which in this case, has the effect of pushing stock prices higher and rates lower.

4.125% remains the most prevalent conventional 30yr fixed rate on top tier scenarios with 4.25% not too far behind.  4.0% is a distant third.  Today's rates are most similar to those seen on December 2nd.  Things could change in a big way depending on what the ECB says tomorrow, for better or worse.

Loan Originator Perspective

Bonds posted solid gains today ahead of tomorrow's ECB policy statement and Draghi' press conference.  His rhetoric on EU economic conditions and future ECB economic stimulus will play a large part in where rates go from here.  I like the trend this week, still not convinced rates have stopped their upward trend, but we're getting closer to confirmation.  Nothing wrong with locking today, based on the best pricing in a couple of weeks, risk tolerant borrowers might be rewarded by floating overnight.  Flip a coin, we could go either way from here. -Ted Rood, Senior Originator

Today's Best-Execution Rates

  • 30YR FIXED - 4.125-4.25%
  • FHA/VA - 4.0%
  • 15 YEAR FIXED - 3.375%
  • 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Rates had been trending higher since hitting all-time lows in early July, and exploded higher following the presidential election
  • 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

  • With the incoming administration's policies driving a large portion of upward rate momentum, mortgage rates will be hard-pressed to make significant improvements until after Trump takes office.  Rates can move for other reasons, but it would take something big and unexpected for rates to move appreciably lower. 
  • We'd need to see a sustained push back toward lower rates (something that lasts more than 3 days) before anything less than a cautious, lock-biased approach makes sense for all but the most risk-tolerant borrowers. 
  • 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).