December 17, 2015
Mortgage rates continued modestly lower today as financial markets continue sorting out their reaction to yesterday's Fed rate hike. As a reminder, the Fed Funds Target Rate (the thing that got hiked) is not directly connected to mortgage rates, and a hike was never a guarantee of impending doom. The past two days have demonstrated that, but they have not necessarily given us the green light to expect more improvements.
As it stands, mortgage rates are still in the middle of their recent range--still waiting on the first forceful move higher or lower in more than month. It's as if rates leveled off in anticipation of the Fed Announcement, but aren't quite sure how to react. The real reason for this phenomenon is the fact that the Fed made sure to painstakingly telegraph yesterday's move and markets had ample time to get in position ahead of time. The question of "now what?" will likely be answered more gradually. I wouldn't be surprised to get one message from the market in the rest of December and then a completely different message when activity picks back up in the New Year.
The average conventional 30yr fixed rate continues to operate in a range of 4.0-4.125% on top tier scenarios.
Loan Originator Perspective
"Mortgage rates improved today as traders digested a mix of economic data. The Philly fed index came in weaker than expected which does not bode well for future economic expectations. I personally see 2.3% on the ten year yield as a line in the sand heading into year end. It recently proven to be a pretty reliable cap on yields. Should this level continue to hold we may see the sellers of bonds exhaust themselves paving the way for potentially lower rates." -Manny Gomes, Branch Manager Norcom Mortgage
"Despite the FOMC hiking rates yesterday, mortgage rates are slightly better today. Bonds have managed a decent rally thanks to the help from falling oil and stock prices. The rate sheets I have seen do not pass along the gains from today. If your lender does reprice for the better today, you should consider locking, but I wouldn't be opposed to floating. If your lender doesn't reprice better today, I would float until tomorrow and evaluate pricing in the morning." -Victor Burek, Churchill Mortgage
"As expected the FED bumped up fed funds by a quarter point, which the market had priced in. The language was somewhat perceived as an indicator of the future still needing to provide stronger data before any dramatic changes to FED policy. Overall a win for rate watchers. Still in the range, floating appears to be safe. Loans with more than 15 days to close are floating in my pipeline." -Constantine Floropoulos, Quontic Bank
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).