Mortgage rates found their footing today, moving slightly lower after spending the past two days rising at the quickest pace in months.   Most lenders had seen enough strength in the morning to offer lower rates right out of the gate, but some improved rate sheets later in the day as bond markets crept into better territory. 

The gains bring 3.875% back into clear focus as the most logical, most prevalent conforming 30yr fixed rate quote for top tier borrowers.  Some of the more aggressive lenders will be quoting 3.75% by default, but they're the exception.  

There were no significant headlines or events to motivate financial markets.  Indeed, today's movement has more to do with random chance than anything.  At this time of year, market participants begin taking time off for the holidays.  Market sentiment then becomes a factor of whoever is left.  That happened to be positive for bond markets today, and consequently mortgage rates. 

The takeaway for prospective borrowers is that the rest of the year is even more of a crapshoot than normal, and whatever movement we see may not be indicative of the trends that will invariably take shape in early 2015.  Locking makes a bit more sense in such an environment.

Loan Originator Perspective

"Very simple guidance, if you are closing in December lock your rate today. If you are closing in January, float. If you plan to float, dont be surprised if rate sheets pull back over the holidays. The next couple of weeks trading wont really matter as many investors have already clocked out til after the new year. Trading volume will gradually decline each day which can create a lot of volatility which is why many lenders pull back on pricing." -Victor Burek, Open Mortgage

"As we head into the Christmas Holiday week it appears we don't have any strong suggestion of the short term direction for rates. Therefore, if I were closing in the next 15 days, or before year end, I would lock in and protect current pricing and enjoy the holidays. For the longer term it's anyone's guess but my sense is we may start to drift higher into the first 1/2 of January as we've had a nice rally recently that seems to have ceased for the moment. If you choose to float I would be careful and ready to lock quickly as volatility can rear its head at any time.." -Hugh W. Page, Mortgage Banker, Seacoast Bank

"Very rarely would I advise locking on a Friday, but that being said, if you are closing in the next 15 days, I would go ahead and take the improvements you are sure to have seen in pricing and lock in. If outside of 15 days, I'd float and remain in touch with your lender. There are a lot of issues that will continue to play out in Russia/Europe and they won't be fixed overnight. If things continue to deteriorate over there a flight to safety will continue and MBS and TSY should be one of the beneficiaries." -Steve Chizmadia, Mortgage Consultant, American Capital Home Loans

"I would strongly consider locking to make sure you can take advantage of near 18-month lows. The latest rally was fueled once again by forces outside the U.S. economy, and MBS and Treasuries are being driven along with the rest of the market." -Michael Owens, Vice President of Mortgage Lending, Guaranteed Rate

"It's the unofficial end of the year for markets today as traders prepare for Christmas/New Year's. I don't expect any groundbreaking moves during the next two weeks. Floating now seems like a higher risk than reward situation, at least for borrowers within 30 days of closing. Those floating should establish their lock expectations with their LO, on when to lock if rates improve or increase." -Ted Rood, Senior Mortgage Originator, MB Financial Bank

Today's Best-Execution Rates

• 30YR FIXED - 3.875
  
• 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).