Mortgage Rates at One Year Highs

Mortgage rates spiked nearly a quarter of a percentage point this week on inflation fears, trouble with Fannie Mae and Freddie Mac, and overall bank weakness. The rate on a 30 year mortgage hit 6.63%, its highest level since 6.68% in August of 2007. On the face of it doesn't seem like rates have really risen much at all, but consider that the economy is weak and housing sales and prices are falling and anything that impacts affordability is a problem.

"Market concerns about rising inflation, further weakness in the housing market and greater probability that the Federal Reserve will raise short-term rates this year all combined to push mortgage rates higher this week," said Frank Nothaft, Freddie Mac chief economist."

Mortgage rates have risen even while the Fed has cut short term rates. That's because mortgage rates are being buffeted by:

• Inflation fears which are pushing up long term bond rates.
• The financial problems of Fannie Mae and Freddie Mac
• The end of bank off-balance sheet financing.

I don't know if foreigners are pulling out of long term Treasuries and I'll have to research this a bit more. But if they are then that would be an additional factor in the rise of longer-term rates.

Will long-term rates come down or stabilize? If the price of oil drops below $100 as some are predicting and the Feds take steps to restart Fannie and Freddie its possible rates may stabilize or even come down. But even at 6.63%, 30 year mortgage is still historically a very low rate. It's just not as low as we've been accustomed to.