It was easy to get lulled into complacency by the second half of 2020 when it came to mortgage rates. Even as other indicators said rates should be rising, they continued on a calm journey to multiple record lows. 2021 has been very different so far!

Covid and its impacts on the economy remain the driving forces behind market trends.  That's generally been great for rates, but it also means that rates should gradually rise as we battle back against covid.  If the onset of the pandemic pushed rates to all-time lows, it's only fair that progress against the pandemic would result in rates moving up from all-time lows.

If you ask 10yr Treasury yields, that's been the case for quite a while.

Mortgage rates had another solid day today--this time without any of the early drama seen yesterday.  If you're just getting caught up, the bond market (which drives day-to-day interest rate movement) has been selling off aggressively since the Jan 5th Georgia senate election.  When bonds sell-off, it means bond PRICES are getting lower and bond YIELDS (aka RATES) are getting higher.  The GA election sparked the move because it gave democrats total control of the government, thus making it easier to pass legislation--especially as it concerns some sort of upgrade to the most recent round of covid-relief stimulus.

Covid-relief stimulus may do great things for people in the short term and for the economy in the longer term, but it does bad things for interest rates (assuming you like low rates, that is).  Reason being: the government issues/creates/sells US Treasuries to finance the additional spending.  More Treasuries issued = higher yields/rates, all other things being equal, and Treasuries correlate significantly with mortgage rates.

Mortgage rates were off to a very bad start this morning, but recovered a portion of what they lost by the end of the day.  The specifics depend greatly on the lender in question.  Sadly, few if any lenders are still able to offer the rates seen yesterday.  To make matters worse, yesterday's rates were already significantly higher than those seen just one week prior.  But how about a big silver lining?

One week prior to yesterday, the average lender was offering all-time low mortgage rates.  So being "significantly higher" than that still hasn't been enough to move the average top tier conventional 30yr fixed quote up to 3%.  Before covid, 3.125% was the lowest ever 30yr fixed rate!  If you're in the purchase market, 2.75% is still common (2.875% for refis).  Lenders continue to be widely stratified depending upon how busy they are (higher rates in cases where lenders need to slow down inbound demand and vice versa).  

Mortgage rates are coming off a rough week--the roughest, in fact, since June 2020 by some measures.  That's the last time rates rose this quickly for market-driven reasons.  There were a few instances of bigger moves in Aug/Sept as the new refinance fee was announced, delayed, and ultimately implemented.  Either way, things aren't great right now, relatively speaking.

The "relative" qualification is important considering this abrupt move higher has yet to threaten to take the average top tier 30yr fixed quote above 3%--far from it, in fact.  Most lenders can still offer 2.875% or better on refis and 2.625% or better on purchases.  This assumes an ideal scenario with 20%+ equity, strong credit, etc.

While it might not seem like the sort of thing mortgage rates should care about, the senate run-off election in Georgia was by far and away this week's most important event.  This wasn't a surprise either.  In fact, interest rates have been bracing for this potential impact since the inconclusive results in early November.  But why do rates care about politics?

Actually, they don't!  Not too much, anyway.  Rates care about the prices and yields of certain bonds in the bond market above all else.  Bond prices can take a variety of cues, but the most basic and most objective input is that of supply and demand.  

Supply and demand can be influenced by several underlying factors.  For instance, the Fed currently buys more than $100 billion in bonds each month.  That has a huge impact on the demand side of the equation.  Higher demand=higher prices=lower rates (bond price varies inversely to rates). 

Mortgage rates moved higher today, but only a modest pace compared to yesterday (read more about yesterday's rate rout HERE).  Over the past two days, the average rate quote for a top tier conventional 30yr fixed loan has risen by an eighth of a percent (.125%).  Yesterday accounts for essentially all of the move, making it one of only a handful of days with as much upward movement in the past few years. 

Is an eighth of a point a big deal?  Only you can answer that.  It comes out to about $7/month for every $100k in loan amount.  For some, it's not a big deal, but for others it can make or break a transaction.  Either way, everyone can agree it would be a bigger deal if we were to see additional examples of similar spikes in the near future.

So will we?

Mortgage rates went to bed last night knowing they were at risk of a volatile day today.  Georgia's senate race has been in focus for 2 months now because it had the chance to change the balance of power in congress.  With both seats flipping from red to blue, that's exactly what happened today.

While the election results have only been confirmed for about an hour, the bond market (which underlies interest rate movement) was already bracing for impact in the middle of the night.  Specifically, bond yields (aka "rates") were already quite a bit higher by the time the election was finalized this afternoon.  When the bond market deteriorates (aka, moves lower in price and higher in yield), mortgage rates are typically rising at a similar pace.

Mortgage rates got off to a slow start yesterday.  It was hard to object considering that left the average lender in line with record lows.  But today was a bit different.  While most lenders were little-changed at first, many ultimately raised rates during the day in response to deterioration in the bond market.

The notion of "raising rates" is relative, in this case.  The average prospective mortgage borrower wouldn't think much of the mid-day increases.  In fact, they would likely be seeing the same rate quote as yesterday with only a slight increase to upfront costs (or a decrease to lender credit).  This is typically the case for mortgages.  It takes some serious drama in the bond market for rates to move in an alarming way, and that sort of drama has been in short supply for months.

Mortgage rates are off to a slow start in the new year, and that's a good thing.  An absence of movement means the average lender continues offering rates that are at or near record lows.  For top tier, conventional 30yr fixed loans, that's around 2.75% for refinances and 2.5% for purchases. 

Whether or not rates remain in this territory in the short term may come down to Georgia's senate run-off elections this Wednesday.  Why would rates care about that? 

Simply put, any time one political party has full control (i.e. House, Senate, Presidency), it's easier for the government to spend money (or legislate a revenue shortfall, as was the case with the tax bill in 2017).  In either case, the result is more Treasury debt, and the level of Treasury debt is a key input for interest rates in general. 

For all practical purposes, the year is over when it comes to mortgage rate volatility.  True, there is some small chance that political developments conspire to push rates just a bit higher in the next two days, but the damage would be insignificant in the bigger picture.  

In other words, we're looking at "all-time low" rates today versus "rates that are close enough to all-time lows that no one would really notice the difference" in the event of more negative outcomes.  The catch is that these sorts of assumptions get increasingly risky as the new year commences.  Especially concerning for bonds (which dictate rates) is the Georgia senate election.  This has nothing to do with political opinion and everything to do with the nature of stimulus and government funding.

Mortgage rates hit another all-time low on Friday for most lenders. Other lenders had slightly lower rates yesterday morning.  Since then however, almost every lender has moved up from those lows, even if only by microscopically small amounts in the bigger picture.  

Purchases and refinances continue to be offered at vastly different rates.  The gap is as wide a half a percent for some lenders, and no smaller than 0.125% in the best cases.  This assumes the loan in question is conventional, conforming, over $125k, and not part of the HomeReady or HomePossible programs offered by Fannie and Freddie (those programs are exempt from the recently phased-in fee that applies to all conventional conforming refinances over $125k).

One major theme in the 2nd half of 2020 is that mortgage rates have been insulated from market drama--walking a different path than their usual best friend, 10yr Treasury yields.  If you ask Treasuries, the big bounce in rates is already well underway. This divergence is occuring for a variety of reasons, but the important thing to know is that we're getting closer to "normal" day by day.  Once we get there, mortgage rates will be less willing to defy their Treasury counterparts.  As to the likely fate of Treasury yields, there's room for movement in either direction. In the bigger picture, rates  will take cues from the economic recovery--a multifaceted issue in itself--and the success of vaccine production/distribution.  

2020 has safely secured its place in the record books as the year of all-time lows in mortgage rates--one of them anyway.  Several other years have recently boasted as many new instances of record lows, but none have done so with the average 30yr fixed rate under 3%.  When it comes to the "top tier" rates that are typically used as benchmarks, sub-3% is actually very old news now.  As of this week, even the broad averages (which include loans that are far from "top tier") have fallen under 3%.  Top tier rates are closer to 2% in some cases.

But how much progress is being made each time the old record is broken? 

Today marked the release of an updated policy statement from the Federal Reserve.  In other words, it was Fed day!  Lots can happen on Fed days--especially those that occur in December.  This has increasingly become a month where the Fed unveils a key policy change, or at least a month where a Fed change is seen as a strong enough possibility to get the market's attention.  The latter was arguably the case this year, although not in grand fashion.

It wasn't as if traders were divided over whether or not the Fed would hike rates or increase the amount of bonds it buys.  The Fed's been clear that neither of those strategies will be changing any time soon.  Rather, traders tuned in to see if the Fed would make a change to the balance of the bonds it buys.  Such a move would have had a positive impact on longer-term rates.  So when the Fed abstained, there was a bit of drama in the bond market--the type of drama that would typically push mortgage rates slightly higher.

Mortgage rates were mixed today, depending on the lender.  The bond market--the driving force behind interest rate movement--was stronger yesterday.  Many mortgage lenders thought it was strong enough to justify mid-day improvements in mortgage rates.  Those lenders were the ones generally offering modestly higher rates today.  Conversely, lenders who abstained yesterday were able to offer slightly better terms today.  All told, the average lender is roughly unchanged with 30yr fixed rates that remain very close to true all-time lows.

Tomorrow brings the week's biggest risks with important economic data in the morning and an even more important announcement from the Federal Reserve in the afternoon.  Although this is a regularly scheduled Fed announcement, there's been ample speculation about a change to the Fed's bond buying program.  The change in question involves adjusting the balance of bond purchases in favor of longer-term debt.  In other words, the Fed wouldn't spend any more money, but they'd be buying longer-term bonds.  This would have a positive effect on longer-term rates like mortgages and 10yr Treasury yields, provided the Fed pulls the trigger.