Mortgage rates continued higher today as lenders opted for typically conservative holiday pricing strategies.  The bond markets that most directly influence mortgage rates improved slightly from yesterday's precipitous weakness.  Normally, those underlying market movements do more to move rates than anything else, but in cases where lenders are getting caught up to abrupt market changes or when they're protecting against uncertainty associated with long holiday weekends, their individual strategies can result in higher rates in spite of market movements suggesting lower rates.  That's the case today, and it puts the average conforming 30yr fixed rate quote at 4.0%, matching the previous high from December 5th.

There's no way to know if rates will move higher or lower next week (don't expect much change this Friday).  What we do know is that rates would improve if trading levels merely held flat between now and then.  In other words, there's a bit of extra negativity baked into current rate sheets, and if markets manage to hold their ground or improve heading into the new year, we would get some of the recent losses back.  To be clear, that's something that makes sense to HOPE for, but isn't justification to forgo locking your rate unless you're prepared to lock at even higher rates if the market happens to move against you.

Loan Originator Perspective

"It most certainly is not the ideal way to head into the holiday weekend, but we must rember where we were just a year ago today.....roughly .75-1.00% higher in rate if I recall correctly. With the recent sell off in bonds and MBS, rates have settled into a slightly higher realm but still in a great place to be. Floating during long weekends, holidays, with light volume can be riskier than normal. We are still within the broader range, below important support levels, and I wouldn't be surprised to see rates dip lower over the next few weeks. If your loan is closing within 15 days you should be locked in, if you are not I would take a shot to see if we receive a relief rally prior to the end of next week. Merry Christmas!" -Constantine Floropoulos, Quontic Bank

"It has been an ugly few days for the bond markets leading into today. The move from 2.15ish to 2.3ish in treasuries over the last few days has not been a friendly to mbs or rate sheet pricing, but the move was exaggerated by the lack of liquidity in markets. If you didn't get a chance to lock in late last week, I'd continue to float for the time being. Moves will continue to be exaggerated by lack of liquity until early next year, but I feel as if locking now with the approaching Holidays will waste a handful or more of the days on your rate lock with office closures and a higher percentage of employees taking time off. Have a safe and happy Holiday season!" -Steve Chizmadia, Mortgage Consultant, American Capital Home Loans

Today's Best-Execution Rates

• 30YR FIXED - 4.0
  
• FHA/VA - 3.25
  
• 15 YEAR FIXED -  3.125
  
• 5 YEAR ARMS -  3.0 - 3.50% depending on the lender

Ongoing Lock/Float Considerations

• The hallmark of 2014 has been a narrow range in rates.  Too many market participants bet on rates going higher in 2014, and markets punished that imbalance with a paradoxical move lower.  This continues to serve as a reminder that prevailing beliefs about where rates will go won't necessarily be correct simply because they're the most prevalent.
  
  
• European bond yields have 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.
  

• Much of 2014 could be considered "sideways to slightly lower" in terms of mortgage rates.  All things considered, it actually has been a remarkably gentle drift lower.  Things became less gentle in mid October when rates briefly broke into the high 3's.  They came back for a more gradual, determined push into the 3's in December.  Some of the late-year strength is being chalked up to an epic slump in oil prices.  This drags inflation expectations lower, which is a net-positive for interest rates.
  
  
• 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).