This market has been interesting in nearly every facet.  The mortgage market has been tattered by depreciating housing prices, the credit crunch, reserve changes and now insurance pull backs.  Many of these problems are deepening and unfortunately will continue to do so as long as the markets cease to function.  For that to happen investors must participate in the markets to provide price stability and unfortunately that's a catch 22 as it is precisely that (volatility) which is driving them away.

The current volatility has made interest rates difficult to predict.  Rates go up and down every day.  Generally they go up and down much like a sound wave in that they have peeks and troughs, but generally move along the mean.  Like the oscillation of a sound wave, interest rate has bounced around in a horizontal fashion over the past several months.  That is until last week.  In Federal Reserve Chairman, Ben Bernanke's speech last week he through off the status quo.  The focus of the markets has now shifted to mortgage rate's worst enemy, inflation. 

The reaction was immediate and extreme.  Rates went up more sharply then I have ever seen them move over the course of a few days.  Typically these rash moves are over reactions of which are corrected as in the pendulum theorem or the Japanese candle stick leash affect.  They say one day does not make a trend.  Unfortunately, in this case, I believe it has started a trend of higher rates.  I believe the oscillations of the market will continue in a generally upward direction.  At first I think we will see a bit of a correction to last week's harshness.  However, I don't believe that we will make up all of the ground that was lost.  Rates will most likely be 1/4% higher when the turbulence subsides and will gradually move upward from there.