Mortgage rates improved today, hitting the lowest levels in more than a month.  Bond markets (which underlie mortgage rates) generally improved last week as the new administration's ability to get policy changes through Congress was called into question by the breakdown of the new healthcare bill.  As of last week, there was some hope that debate would resume this week and that the bill wasn't completely dead.  As the weekend passed without meaningful updates, markets increasingly assumed failure.

One of the primary functions of government and mortgage-backed bond markets is to serve as a "risk-free" investment.  It might seem strange to consider mortgage-backed securities (MBS) as "risk-free" with the mortgage meltdown being a fairly recent phenomenon, but indeed, today's MBS are as risk-free as they've ever been.  Even then, they tend to follow movements in US Treasuries which are considered the risk-free benchmark for all other dollar-denominated bonds.

All that to say that investors buy bonds (which pushes rates lower) when they wish to avoid risk, or when they think that riskier investments won't perform as well.  The promise of new and stimulative fiscal policies helped riskier assets (like stocks) outperform in the wake of the presidential election.  To whatever extent the ability of the new administration to effect policy change is called into question, investors will increasingly consider moving away from riskier assets and back into bonds.  The breakdown of the healthcare bill provides exactly that motivation.

Whether this is an ongoing theme, or a mere growing pain for the new administration remains to be seen.  But as long as the possibility remains that it's an ongoing theme, bond markets (and thus, mortgage rates) can continue to be more resilient than they otherwise would have been.

That resilience manifested itself today in rates moving down to 4.125% for many lenders (top tier, 30yr fixed quotes).  Nearly as many remain at 4.25%, but for lenders who didn't quote lower rates today, closing costs are lower on average (making "effective rates" lower).  

Loan Originator Perspective

With all the uncertainty in financial markets, it makes the absolute most sense to lock in your mortgage rate at application.  Today we are also benefiting from a mini rally in interest rates over the last two weeks.  It is impossible for anyone to call the direction of rates, locking in at these levels and securing your rate is the smart choice.  Take the risk off the table, and focus on what’s important, your family and career. -Gus Floropoulos, VP, The Federal Savings Bank

Our recent bond rally continued today, as investors pondered tax reform and fiscal stimulus' legislative fates.  The more dysfunctional Washington is, the less likely inflationary reforms become.  Suffice to say dysfunction is winning at the moment.  I'm OK floating short term, as it often takes secondary desks a few days to pass along pricing improvements.  As always, only float if you won't lose sleep (or your loan!) if rates rise. -Ted Rood, Senior Originator

Today's Best-Execution Rates

• 30YR FIXED - 4.125-4.25%
• FHA/VA - 3.75-4.25%
• 15 YEAR FIXED - 3.5-3.625%
  
• 5 YEAR ARMS -  2.75 - 3.25% depending on the lender

Ongoing Lock/Float Considerations

• Some investors are increasingly worried/convinced that the decades-long trend toward lower rates has been permanently reversed, but such a conclusion would require YEARS to truly confirm
  
  
• Still, it would take something very big and unexpected for rates to make a big, sustained push back toward pre-election levels.   Even then, it would take time to confirm such a shift.
   
• With fiscal and monetary policy paths both clearly putting pressure on rates, at least one of those would need to make a noticeable change before anything but a cautious, lock-biased approach makes sense as a baseline strategy.  Floating should only be considered as a tactical opportunity to capitalize on temporary corrections. 
   
• Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders.  The rates generally assume little-to-no origination or discount except as noted when applicable.  Rates appearing on this page are "effective rates" that take day-to-day changes in upfront costs into consideration.