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Why Are Mortgage Rates on the Rise?

By
Real Estate Agent with RE/MAX ELITE, Brevard County FL

Many of us have witnessed the rise and fall of home prices we also experienced record low interest rates over the past 7 month's. We saw rates dip down into the mid to high 4% range from Feb- April, allowing many to refinance at much lower rates, also purchasers were able to take advantage of homes 40-60% off the value in some areas. Rates over the past several weeks have climbed back into the mid to high 5% range (which is still a great rate) but why does the interest rate change so drastically? The interest rates are driven for the same reason housing fluctuates (supply & demand). The 10 year treasury yield is a key indicator of the direction for mortgage rates. When there is more demand to purchase the treasuries this drives the rates down, when investors sell the treasury and there are not enough buyers to keep the price stable, drives the rates up. These days the treasury has been printing so much more money to try to stimulate the economy (this really is something- borrow or print more money to help the economy). The main reason rates were going down, the federal reserve was buying our own treasuries to drive the price of the bonds up which in turn lowers the rates, this created a buying frenzy, so many other investors decided to piggy back and go along for the ride. Now the ride is over the selling has begun to take hold, so now the dept of treasury has begun to hold several treasury auctions in the hopes to get new money to pay or invest in our debts. The problem here is the state of our economy is not bringing many takers at lower yields so the selling activity is driving the price of the bonds down and the rates higher.

Many people feel as the Government will keep rates low, but they already have the fed funds rate at .25% which has only so much effect. As the spreads of the bond yields rise, the next moves might be for the federal reserve to raise the prime rates maybe sometime in the next 6 months if inflation becomes the result of all the new printed money sloshing around.

To put things in perspective, rates are still low historically and combine that with very affordable home prices, this might just be an opportunity this generation may not see for many, many years.

Wishing you all prosperous second half of 2009

Steve