Mortgage rates drifted just slightly higher today amid extra quiet trading conditions.   Bond markets (which include the mortgage-backed-securities that dictate mortgage rates) close early today and are fully closed tomorrow for the New Years holiday.  Banks and mortgage lenders will also be closed, but almost all will be open on Friday.  Keep in mind that when banks are closed, lenders don't release new rate sheets and mortgages can't be locked.

As for today's movement, it does little to change the bigger picture.  Top tier scenarios are still easily in the high 3's with 3.875% being the most prevalently-quoted conforming 30yr fixed.  That's unchanged from yesterday.  Because of that "higher rates" refers to the modestly higher closing costs associated with prevailing rates.  In other words, the NOTE rate would be the same and the EFFECTIVE rate is microscopically higher.  Expressed in terms of effective rate, the increase is 0.01%.

This leaves today's rates among the lowest of 2014, which is quite a feat considering the widespread consensus for higher rates this year.  As it happened, markets did a great job of "pricing-in" the end of the Fed's asset purchases in 2013.  Markets will always attempt to account for present and future information to whatever extent the future is known.  With mid-2013 telegraphing the Fed's tapering decision fairly clearly, markets acted on the information. 

By the time the Fed finally began the tapering process, that variable was removed from the equation and rates calmed down and drifted sideways until the next major source of inspiration showed up.  For 2014, that would certainly be European growth/inflation/QE considerations.  April and May marked a turning point where markets began to consider that Europe might be too big a drag for US rates.  Until then, it was unclear if rates would resume their upward trend. 

Afterward, we clearly saw investors coming to terms with the fact that almost everyone was wrong about the path of rates in 2014, and we've simply been following the Eurodrama ever since.  Whenever that eventually turns a corner, so too will mortgage rates--most likely.  The fun thing about such a corner is that it will only be recognizable in hindsight.  One thing's for sure though, with key European bond yields closing at a record low yesterday, we're definitely not there yet. 

Here's a chart of US 10yr Treasury yields (the best indicator of broader 'bond market' movement) and the daily effective mortgage rate figure that I painstakingly calculate with math and magic every day.  The white line is the single most accurate representation of day to day movement in average conforming 30yr fixed mortgage rates anywhere.   Happy New Year.

Loan Originator Perspective

"It appears the New Year will indeed be "Happy" as mortgage rates are close to the lowest levels we've seen in many months (under 4% for the best scenarios). Global growth is apparently slowing in many areas indicating lower rates worldwide which could lead to more demand for relatively higher yielding US Treasury securities. So, in the face of an indication by the Fed they will begin to raise rates mid year this should have a dampening effect on the upward movement. But, there are too many volatile and unpredictable scenarios that are possible moving into 2015 which seriously means, "anything can happen". Does it make sense to lock in now some of the best rates we've seen in over a year and a half? Certainly no one could fault you for that. Floating may pay off but be nimble and ready to lock if needed. Happy New Year!" -Hugh W. Page, Mortgage Banker, Seacoast Bank

"Rates have been in a narrow range this week as volume remains light due to the holidays. Things should get back to normal on Monday. In my opinion risk vs reward currently favors floating into the New Year. I wish you all a very Happy New Year!!" -Manny Gomes, Branch Manager Norcom Mortgage

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).