December 19, 2016
Mortgage rates stayed close to the highest levels in more than 2 years today, even though underlying bond markets left plenty of room for improvement. Typically, when bond markets improve as much as they did today, rates would be noticeably lower. The inconsistency has to do with more conservative lender pricing strategies surrounding the holiday season.
Why does this happen? There can be a variety of reasons. At the most basic level, keeping rates higher than they otherwise might be is a way to decrease new business volume. That might not sound like a good thing, but it can be if it keeps customer service optimal during times of decreased staffing levels. On a more esoteric level, it's hard for lenders to offer their most aggressive rates when bond market participation wanes during the holidays. Think of the bond market like the wholesale swap meet where lenders go to get the funds to do your mortgage. The more robust the activity is at that swap meet, the easier it is for the lender to get a good enough deal to offer better prices (aka "lower rates") to you!
All this having been said, a few lenders did update rates this afternoon, offering slight improvements. The average effective rate (which adjusts for closing costs) fell just slightly, but the average contract rate for a conventional 30yr fixed loan remained at 4.375% for a top tier scenario, with several lenders still up at 4.5%.
Loan Originator Perspective
In the last 4 weeks we've seen the same story play out several times. Rates rise abruptly, and then give the impression that they have topped out. Hope increases for rates to fall just as the next abrupt move higher begins! Until this cycle is broken (and it could be on hold until the new year), I wouldn't expect any major reversal of fortune here. Play it safe, new loans should lock at application and give yourself extra time due to the holiday lag. I'd rather be late to the party vs. showing up on time to find out it's cancelled. Barring an unforeseen extraordinary geopolitical or global economic event we most likely will not see a reversal of the current trend in higher interest rates. -Gus Floropoulos, VP, The Federal Savings Bank
Today's Best-Execution Rates
- 30YR FIXED - 4.375-4.5%
- FHA/VA - 4.0%
- 15 YEAR FIXED - 3.375-3.5%
- 5 YEAR ARMS - 3.0 - 3.5% 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).