Current Mortgage Rates Roundup for December 20, 2015: What to Expect from the Week Ahead?

Mortgage rates headed slightly lower this week, following the Federal Reserve’s decision on Wednesday to bump up its key interest rate by a quarter of a point. And it looks like the market had already priced in the hike, as mortgage interest rates managed to avoid moving higher, despite the Fed’s move to raise short-term rates. Actually, mortgage rates sailed slightly lower in the last three days of the week. Stocks fell on Friday, while pricing on mortgage-backed securities (MBS), which mostly directly influence mortgage rate movement, drifted higher. As a result, a number of lenders issued updated rate sheets on Friday with lower rates, while others haven’t passed along the gains just yet. At the majority of lenders Friday’s gains can be seen in lower closing costs or higher lender credit as opposed to lower contract rate.

The bottom line is that today’s mortgage rates are just as good as rate levels a week earlier, which makes home-buying and refinancing attractive for borrowers. According to our observations, the average lender is offering the 30-year fixed mortgage rate in the range of 4.000% – 4.125% these days. But as we mentioned above, not all mortgage lenders have passed along Friday’s gains just yet, so those borrowers who are sitting on the fence to secure a loan will need to take a look at the loan pricing at the beginning of the upcoming week and evaluate it, how it compares to Friday’s rate levels.

Current Mortgage Rates Roundup for December 20, 2015: What to Expect from the Week Ahead?

In the secondary market, the yield on the benchmark 10-year treasury note fell by 5 basis points to 2.19% on Friday. This marks the second straight day that the yield on this type of government bond has been falling. As mortgage rates tend to follow the movement of the 10-year note, you may see some minor changes in rates at some of the lenders. As for the longer-term, 30-year treasury yield, it closed Friday’s trading session at 2.90%, a downtick of 4 basis points compared to data from a day earlier.

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Current mortgage rates are lower ahead of the holiday-shortened week, and with no significant domestic economic data scheduled for release in the upcoming week, we don’t anticipate a big net change in interest rates. However, typically the last two weeks of the year see lower trading volumes, which can lead to increased volatility. Still, loan providers tend to be more conservative with their rate sheets before year-end, which means the risks and rewards of locking a rate or floating at this time of the year could be lower than usual.

Government-sponsored financial enterprise, Freddie Mac reported on Thursday, that the average interest rate on the 30-year fixed conventional mortgage rose to 3.97% from the previous 3.95% in the prior week. This time a year earlier, the 30-year FRM averaged a rate of 3.8%. The average rate on the shorter-term, 15-year fixed mortgage came in at 3.22% this week, according to the federal agency’s latest weekly Primary Mortgage Market Survey (PMMS). The current interest rate on the 15-year fixed conventional loan is 3 basis points higher compared to data from a week earlier. A year ago, the 15-year fixed mortgage averaged a rate of 3.09%.

A quick look at current average mortgages rates on flexible adjustable rate loans shows, that the 5-year ARM stayed frozen at 3.03% this week. Back in 2014, this type of mortgage loan averaged a rate of 2.95%. On the other hand, the average rate on the 1-year adjustable rate mortgage moved up to 2.64% this week, an increase of 3 basis points compared to data in the prior week. At this time last year, the 1-year ARM averaged a rate of 2.38%, according to Freddie Mac’s data. When looking at the results of Freddie Mac’s weekly survey, it must be noted, that the survey responses are collected in the first half of the week, so the final data doesn’t reflect those changes that impact mortgage rates later on during the week.

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The highlight of the week was the Fed’s decision to end a seven-year stretch of zero interest rate policy, and increasing its benchmark interest rate by 25 basis points. The key takeaway from the Fed’s move is that the organization believes the U.S. economy is stable enough to bear a rate increase, which is the first step for normalizing monetary policy. The U.S. central bank stressed, that it expects economic conditions will allow only a gradual increase in the federal funds rate moving forward. The median target for the Fed’s benchmark monetary policy rate is 1.38% by the end of 2016.

While 30-year mortgage rates are now slowly approaching 4%, most experts don’t think expect rates to go much higher than 4% in the near future. Comments from Freddie Mac’s chief economist, Sean Becketti, suggests that interest rates could remain at „historically low levels” throughout 2016, even if the Fed continues tightening its monetary policy at a gradual pace. „We take the Fed at its word that monetary tightening in 2016 will be gradual, and we expect only a modest increase in longer-term rates,” Becketti said. “Mortgage rates will tick higher but remain at historically low levels in 2016,” he added.

Now, switching to the U.S. economic calendar, the unfolding holiday-shortened week looks to be light on influential data. Still, all upcoming domestic economic reports are important for the Fed to determine the pace and timing of future rate hikes. Monday is going to be silent in terms of meaningful economic reports, so in the meantime the market will likely continue digesting the Fed’s monetary policy statement.

On Tuesday, the third and final reading on Q3 GDP is scheduled for release. The latest projections from economists suggest that GDP growth could be revised down to 1.8% from the previous estimation of 2.1%.

The National Association of Realtors will release November’s existing home sales report on second day of the week. Existing home sales for November likely dropped 0.2% to a seasonally adjusted 5.35 million units, analysts say. Back in October, existing home sales tumbled 3.4% to a seasonally adjusted annual rate of 5.36 million units.

The upcoming Personal Income and Outlays report is scheduled for a release on Wednesday. Personal nominal income likely increased 0.2% in November, while consumer spending likely grew by 0.3%, according to the most up-to-date estimations. Core PCE inflation, which excludes volatile food and energy categories, likely climbed 0.1% last month.

New home sales data for November will see the light of day during the mid-week. Economists believe that new home sales likely rose 1% to a seasonally adjusted annual rate of 500,000 units in November. In October, purchases of newly-built U.S. homes climbed 10.7% to a seasonally adjusted annual rate of 495,000, according to the Commerce Department’s data.

A fresh report on U.S. durable goods orders is scheduled for release on Wednesday. The latest forecasts from economists suggest, that total durable goods orders likely fell 0.7% last month, while nondefense capital goods orders, that excludes aircraft orders, likely remained unchanged.

On Thursday, the Labor Department will issue fresh jobless claims data. Initial claims for state unemployment benefits declined by 11,000 to a seasonally adjusted 271,000 in the week ended December 12, the latest data revealed. For the upcoming jobless claims report, the consensus expectation is a reading of 270,000.

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