Mortgage Rates Mostly Hold on to Friday's Big Gains

Mortgage rates were just slightly higher today, but generally did a good job of holding on to recent gains.  For perspective, last Friday was the only day in the past 21 months with lower rates, and many borrowers may find their quotes unchanged over the weekend.  Almost everyone else would simply see minor increases in upfront costs as opposed to changes in the contract rate itself.  Those remain steady with conforming 30yr fixed rates of 3.625% widely available for top tier scenarios and 3.5% not far behind.

In terms of the markets that underlie mortgage rate movements, today was largely about consolidation after Friday's strong move.  The last day of any given month can bring increased trading activity, and this helped January end on a decisively positive note.  The first trading day of the following month often sees a bounce back in the other direction.  In this light, the fact that rates aren't under even greater pressure today is a win.  It keeps the long term trend toward lower rates intact. 

That said, there's no way to rule out the possibility that today could merely be the first of several days moving higher.  Even if such a bounce ended up being a temporary correction in the bigger picture, that would only benefit borrowers that could afford to float that long (and to take the risk that bounce is indeed temporary).  As such, borrowers with shorter time horizons should always consider locking in gains when rates are this close to long-term lows and threatening to bounce higher.

Loan Originator Perspective

"With MBS recouping most of the morning losses, I favor floating all loans overnight. The morning weakness in the bond market did result with lenders issuing slightly worse rate sheets then those from Friday and as of 2pm eastern we have had no reports of lenders improving rate sheets. I do believe we will see better rate sheets in the days ahead." -Victor Burek, Open Mortgage

"Last week put us into a new area for interest rates, and possibly enough fuel to keep the momentum for a move closer to the historic all time lows. Lenders will be hesitant and cautious to pass these gains for many reasons, but ultimately, the longer we stay at these levels or better, the more likely we see it pass through to rate sheets for our clients. Loans closing within 15 days should be locked, loans closing inside of 45 days should be very defensive and cautious as the current realm we are in can disappear much faster than it took to get here. Locking at these levels seems to be the smart move, even if rates and spreads continue to improve. I believe we have yet to see the bottom." -Constantine Floropoulos, Quontic Bank

"Mortgage Rates have held strong in the first day of the month, and I think US treasuries are showing 1.7% as support for us. I mentioned 1.7 on Friday as a line in the sand I'd like to see us stay below if we are going to see lower rates. Floating is my suggestion to see if we start to rally further, but as always, be ready to lock." -Brent Borcherding, brentborcherding.com

"Mortgage bonds have maintained their resilience heading into the first trading day of the month as they powered back to nearly unchanged levels after opening the day lower. They do have a pretty tough barrier to cross which has been capping gains but if we are able to get above this barrier we can see rates come down a bit more. For now as long as we hold out ground more and more lenders may begin to finally pass on the market gains to their rate sheets. Float for now but be cautious. " -Manny Gomes, Branch Manager Norcom Mortgage

Today's Best-Execution Rates

• 30YR FIXED - 3.5-3.625
  
• FHA/VA - 3.25
  
• 15 YEAR FIXED -  2.875
  
• 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

• 2015 began with a strong move to the lowest rates seen since May 2013.  The catalyst has been and continues to be Europe.
  
  
• European bond yields trended constantly lower in 2014, thus playing a prominent role in keeping US rates lower than they otherwise might be.  Many feel that Europe will continue to slide until their central bank engages in US-style quantitative easing.  Some see this happening in early 2015.  In any event, we're looking for a turn in Europe, first and foremost, before worrying about the longer-term trend in bond markets being at serious risk of reversing.
  

• It's impossible to know when Europe will turn a corner, and even then it's only the sort of thing we'll be able to observe in hindsight.  That means every head-fake toward higher rates runs the risk of developing into a longer term rise, even if those risks vary greatly in terms of probability.  Clients with longer term time horizons and who otherwise don't mind losing some ground in exchange for the chance at locking even lower rates are the only ones who should float.  Clients who must close by a certain date or who can't afford to lose any ground on rates should generally be locking even though the longer term trend has been in their favor for over a year now.
  
  
• 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, 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).