Mortgage rates moved lower today, continuing the recent trend of improvement.  Investors are feeling more cautious after Fed Chair Janet Yellen expressed a surprising amount of caution around the topic of hiking rates and providing economic accommodation.  The Fed Funds Rate is a short-term rate that does not directly dictate mortgage rates.  That said, easier monetary policy tends to benefit the longer term bonds that drive mortgage rates, unless those low Fed rates actually manage to juice the economy and perhaps even inflation.

But right now, nothing of the sort is happening.  Several major financial firms sharply downgraded Q1 GDP forecasts today, as did the Atlanta Fed's popular GDPNow model.  Current forecasts are getting dangerously close to zero growth.  Couple that with investor anxiety over the impending earnings season and there's reason to worry about stock markets maintaining recent gains.  If stocks happen to reverse course, the bond market is typically one of the beneficiaries, and that means rates would move lower.

Part of the recent move lower in rates is due to anticipation of just such a "sell stocks, buy bonds" trend--just like the one seen in the first 6 weeks of 2016.  If stocks actually do move significantly lower, it's highly likely that rates would follow.  Even now, rates are already very close to the lowest levels in 3 years.  In fact, since mid-May 2013, we've only seen rates any lower than today 2-3 times, depending on the lender.  As for particulars, the most aggressive lenders are back to quoting 3.5% on top tier conventional 30yr fixed scenarios, with the bulk being at 3.625%.  FHA rates have been pinned against the floor at 3.25% and aren't likely to go lower any time soon due to the structure of the secondary market for FHA loans.

Loan Originator Perspective

"Bond markets eased upward today, and my pricing improved marginally from yesterday's.  MBS have now matched their highs for 2016 (meaning lowest rates), will be interesting to see if we can continue past them.  While I'm not jumping to lock my floating loans, I am certainly aware that we may be nearing the end of this 3 week rally.  If you're floating, better have confidence your originator is monitoring MBS markets.  Loans within 30 days of closing could certainly do worse than locking at these levels." -Ted Rood, Senior Originator

Today's Best-Execution Rates

  • 30YR FIXED - 3.625%
  • FHA/VA - 3.25%
  • 15 YEAR FIXED - 2.875 - 3.00%
  • 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

  • The Fed finally hiked on December 16th, causing fears of rising rates in 2016, but markets began the new year with rates moving surprisingly lower.  Major losses in stocks and oil prices were part of the same trend of investors moving away from risk.
  • After bottoming out fairly close to all-time lows in February, rates began to rise somewhat sharply in March as market panic subsided and as the Fed signaled it would probably still hike rates in 2016--just not as quickly as anticipated.

  • It remains to be seen whether markets can continue to move in this risk-friendly direction (read: bad for rates, good for stocks).  Stocks have yet to break out of a gradual downtrend that began in mid-2015.  If they do, it could keep pressure on rates to continue higher.
  • We HAD been leaning toward locking since March 1st, which has proved to be a very solid strategy, but began to reconsider starting the 3rd week of the month.  We've been more open to the idea of floating since then, as long as you're setting a stop-loss level somewhere overhead, meaning you'd lock to avoid further losses if markets move against you.
  • 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).