Mortgage rates moved up for the second consecutive day, but in an uncommon way.  Mortgage-backed-securities (MBS) are the financial instruments that mortgages ultimately 'become' when they're grouped together with other mortgages and sold to investors.  While the MBS market can be a complex thing to understand and explain, here's a simple fact: when MBS prices rise, rates fall, and vice versa.  Bigger moves in MBS result in bigger moves for mortgage rates.

With all that in mind, today's move in MBS was fairly small--the sort of move that would normally result in an almost imperceptible increase in rates.  It's somewhat surprising, then, to see that rates moved higher fairly abruptly.  In fact, today's average rate quote is as bad as it's been since July!  What's up with that?! 

First of all, keep in mind that rates were already operating fairly close to these multi-month highs.  Still, the move was definitely more abrupt than MBS suggested.  That abruptness was due to the nature of the holiday season in financial/mortgage markets as well as the timing of the MBS losses.  Yesterday was a much weaker day for MBS, but lenders didn't 'reprice' (adjust rate quotes in the middle of the day) as much as normal.  That meant today started off at a big disadvantage, simply by beginning where yesterday left off.  Additionally, lenders are simply far more conservative with rate sheets when market activity starts dying down for the holidays, and it's been dying down in a big way.

Unfortunately, all this means the highest rates in 5 months.  Fortunately, if you're on the fence about locking or floating, this is one of the few occasions where the odds are in your favor from a purely mathematical standpoint.  In other words, if MBS prices simply stayed where they were right now, rates could drop meaningfully by next week.  While there's never a guarantee about the direction of market movement, I am guaranteeing you there is extra "cushion" in lender rate sheets at the moment.

Loan Originator Perspective

"Rates continue to slightly worsen heading into the holidays.   If you plan to lock before Christmas today is the day.  If not, no reason to consider locking tomorrow as it is a short trading day and lender rate sheets will be conservative regardless of bond trading.  At this point, with the last couple days of bonds drifting higher, I would float until Monday."-Victor Burek, Churchill Mortgage

Today's Best-Execution Rates

• 30YR FIXED - 4.0-4.125%
  
• FHA/VA - 3.75%
  
• 15 YEAR FIXED - 3.25-3.375%
  
• 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

• 2015 has been largely about global interest rates rising unevenly from a long-term low brought about by the onset of quantitative easing in Europe.  European rates are most directly affected, but rates in the US have often taken cues for similar movement. 
  

• As the European rate rally fizzled out, the Fed began telegraphing its intent to hike rates.  While the Fed rate doesn't directly affect mortgages, the two are still loosely connected over time.  They become more disconnected when the economy begins to contract.  This helps longer term rates like mortgages move lower even while the Fed rate his steady or rising.
  
  
• The Fed finally hiked on December 16th, but there was no immediate reaction in mortgage rates.  Some think that an economic contraction might not be too far away.  Others are concerned about a lack of inflation (which is good for longer term rates like mortgages).  Bottom line: the Fed rate hike has not been the death knell for low mortgage rates that many feared it would be, although the near term range is uncertain and rates could be more volatile than normal as we wait for a new trend to emerge.
  
  
• 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, conventional 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).