December 31, 2015
Mortgage rates had an interesting year to say the least. After almost universal consensus on a move toward higher rates the first few months of the year instead saw a precipitous drop to long-term lows. Chalk that up to the inception of Europe's bond buying program (and most of 2014's improvements for that matter).
Later in the year, rates saw bigger moves higher and lower as expectations ebbed and flowed regarding the Fed rate hike. Rates like those pertaining to mortgages and longer-term US Treasuries can move more nimbly based on those expectations. The higher the likelihood of a Fed hike, the higher mortgage rates moved in anticipation. That phenomenon ultimately allowed mortgage rates to hold their ground at relatively unchanged levels after the Fed finally pulled the trigger.
On average 2015's mortgage rates were much lower than 2014's, but unlike 2014, they were also generally moving higher. We end the year with the average conventional 30yr fixed rate quote between 4.0% and 4.25% compared to a 3.75%-4.0% range at the end of 2014. For what it's worth, 2014 ended at the lowest rates of the year. 2015 ends with rates near their highest levels of the year. Rates should continue to rise, on average, until the economy shows signs of stagnating. That could take months at best, or years at worst. Thankfully, any sustained move toward higher rates isn't likely to be as sharp as historical precedent would suggest.
Loan Originator Perspective
"As I've said this week, pricing on holiday week's, particularly just before an extended weekend, is conservative. Lock desks know markets can change due to international drama, etc, and they can't adjust rates when they're closed. I'm floating new applications into next week. Happy New Year!" -Ted Rood, Senior Originator
"It appears bonds will end 2015 with a small rally. Of course, lenders will not pass along the improvements today. It is a tough call whether to lock or float. With today being the last day of year, hard to guess what will come on Monday as traders look to start out the trading year. I think if you can tolerate the risk, and afford to be wrong, I would float over the holiday weekend and see what next week brings." -Victor Burek, Churchill Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.125-4.25%
- 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).