Mortgage rates improved significantly to kick off the new year.  The gains are a combination of actual improvement in bond markets and lenders lowering their guard from conservative holiday pricing strategies.  In other words, lenders had been holding back a bit during the holidays.  That's normal and we'd discussed it as a factor.  And now, not only are those conservative strategies fading, but underlying bond markets (which drive mortgage rates) are improving to boot.  

The positive double-whammy brings rates in line with--or lower than--anything else in the past 19 months.  The most prevalently-quoted conforming 30yr fixed rate for top tier borrowers is now easily 3.875% and an increasing number of lenders are at 3.75%.

All that having been said, it's important to keep in mind that markets aren't fully back up and running in terms of participation and volume.  While the holidays are behind us, many market participants won't be back in the office until next week.  We'll have to wait until then to see if today's strength is the start of a new trend.

Loan Originator Perspective

"Happy New Year!!! Prior to the Christmas break, i advised readers to float through the volatility that year end brings and look to lock once 2015 is here. If you followed that advice, you will be happy when you speak to your loan officer today. Rate sheets this morning are about as good as i have seen in over a year. I rarely advise to lock on a Friday, but if you are within 15 days of closing, i would strongly consider locking. If you choose to lock today, i would wait until later in the day to allow lenders time to pass along the morning gains. As of noon eastern, a handful of lenders have already repriced for the better." -Victor Burek, Open Mortgage

"The first day of 2015 has been kind to mortgage rates as we continue to incrementally improve on the best pricing we've seen in over a year and a half. Is this a sign of things to come in the 1st quarter of the year? Perhaps, but if I haven't locked my rate yet and my closing is coming in the next few weeks I would be inclined to protect what's in front of me now and lock. If my closing is much further out, floating may be safe but be wary of the market and the many landmines that have a tendency to surprise us from time to time and stay tuned in." -Hugh W. Page, Mortgage Banker, Seacoast Bank

"Rates improved again, on the first trading day of 2015 as manufacturing data pointed to slowing US growth. We're near our best pricing since May, 2013, and floating borrowers might want to lock up the gains. The long term trend still points downward, and those who missed the refi boat when rates rose quickly in 2013 may want to call their favorite originator to check pricing. Great time to be a borrower!" -Ted Rood, Senior Loan Originator, MB Financial Bank

Today's Best-Execution Rates

• 30YR FIXED - 3.75 - 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 was 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 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 was chalked up to an epic slump in oil prices.  This drags inflation expectations lower, which is a net-positive for interest rates, but it could be debated as to whether oil prices were a chicken or an egg in the global growth story.
  
  
• 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).