The bond market continues to take a beating as it has over the last few weeks. As a result mortgage rates are up nearly a full percentage point. There is no telling when or if the Fed will intervene again to compress rates but in the meantime people looking for mortgages are faced with significantly higher rates than they would have seen a month ago.
Here are some excerpts from an interesting Newsweek article on the details:
Here’s a feedback loop that nobody expected: It looks like investors’ expectations for an economic recovery could end up delaying that very scenario.
Fear of inflation and concerns over the long-term impact of ballooning government debt have been driving up yields on 10-year U.S. Treasury notes, which reached 3.91% on June 8 before easing back to 3.84% the next day.
But hasn’t the Federal Reserve been working overtime to keep rates down? The prime reason for the Fed’s commitment to buying Treasury debt was to lower mortgage rates to revive the moribund housing market. That was starting to work, but economists are now warning that rising mortgage rates will stop any rebound in the housing market in its tracks and derail the broader economic recovery. …
Although over the long run the Fed certainly wants to reduce the mortgage market’s reliance on the Fed’s purchasing of mortgages, in the near term it can afford to increase its mortgage purchases in order to keep rates from going higher, says Zelman.
One worrisome sign, notes Zelman: She’s heard the hike in the 30-year fixed-rate mortgage to 5.50% has crippled refinancing activity. Deterioration in home values has caused many owners to lose equity to the point where they would only have positive equity in their homes if they got a rate between 4.5% or 4.875%. Rising rates appear to have boosted new home purchases, however, by pulling in people who were sitting on the fence since they’re increasingly afraid of missing the window of opportunity to secure a relatively low rate.
