Mortgage rates have risen to their highest level in the last 3 months. The average rate for a 30-year fixed mortgage jumped to 5.44% yesterday. This is in line with the steep increase in the yields of long-term treasury bonds. The 30-year rate was at a record low of 4.78% in April. The decision of the Federal Reserve to buy $1.25 trillion of mortgage securities and $300 billion in Treasury Notes this year led to a drop in mortgage rates early this year. Lower rates, in turn, led to an increase in mortgage applications.

Analysts are now worried that the surge in mortgage rates could impact the economy adversely by curbing consumer spending. Mahesh Swaminathan, a mortgage strategist at Credit Suisse Group, says, ""The spike in rates has the potential to derail a lot of things." According to Credit Suisse, a rise of 0.1% in mortgage rates translates into a 1% increase in home prices. Higher rates will hit home prices and sales. Ben Bernanke, Chairman of the Federal Reserve, referred to early signs of economic recovery as "green shoots" in an interview recently. T.J. Marta, a financial analyst, says, "If the Fed does not step in, you are going to see the 'green shoots' get frost bite."