December 3 rates were .625% higher than they were October 8, which means a borrower pays $73.45 more per month on a $200,000 loan. Here's why...
1) The Feds purchased Mortgage Backed Securities (MPS) during QE1. Now the Feds are mostly purchasing Treasuries. The massive purchasing of MPS caused rates to be artificially deflated. We don't have that in QE2 so there is no "barrier" to get the interest rates down
2) Last week Ireland was rescued from its inability to pay its debt, U.S. home prices decreased 1.5% from a year earlier to settle at 2003 levels, China's manufacturing and inflation began to boil over, and U.S. unemployment rose to 9.8% as only 50k private sector jobs were created vs. the 140k expected. The Irish and broader European debt crisis, reversal of home prices, and poor jobs data are all events that would normally cause rates to drop since each event causes investors to shift into safe bets like mortgage bonds-so mortgage bond prices rise and rates drop. But Chinese inflation threats and an overall sentiment that bond prices are already too high have outweighed these other factors-so mortgage bonds have been selling off steadily causing this rate spike.
3) Employment Numbers (one of the most, if not the most, important economic number of each month) -Overall, Traders were caught by surprise last Friday when the Jobs Report came in way below estimates. The private sector numbers were also disappointed. See Market Report below for more information.
As a result, rates are creeping toward the 5s. Despite this, an opportunity still exists, as home loan rates are still at historically low levels for now.
In this unprecedented post-crisis era, we can expect lots more rate volatility, which could mean rates come down again. But anyone holding their breath for a return to low 4s may very well turn blue. The more likely scenario is that we level off into a trading range that's +/-.75% from current levels for the next couple of months.