Mortgage rates jump ¾s of a point in one month
Dec 2010 17

Mortgage loan rates jumped by about 3/4′s of a point, this past week, throwing another wrench into the works for the residential real estate market.

Freddie Mac‘s weekly survey showed an average rate of 4.83% for the week ending Thursday, up from 4.17% a month ago.

Ten-year US Treasury Note yields have also jumped. Mortgage loan rates mimic the direction of these notes because the average length of time a homeowner holds onto a mortgage is ten years.

I’ll have to check my economics book, but my understanding is that yields are going up because the government is about to issue massive amounts of additional debt, and they will need to increase interest rates to encourage investors to buy them. I’ve also read that yields have gone up because investors are expecting that the stock market will become more appealing during the expected recover over the next year or two so bonds have to increase yields in order to stay a competitive investment alternative.

Regardless, the news of rising rates is bad for just about everyone. If you’re refinancing, obviously, higher rates mean you may not be able to qualify. If you’re looking to buy, your loan approval letter is probably worth the paper it’s printed on.

I’m not convinced that rates are going in one rate and one rate alone.

I am amused by this guy, though, quoted in a Wall Street Journal article:

“I’ve been doing this 15 years, and I’ve never seen rates rise this fast,” said Wade Douroux, president and CEO of Resource Financial Services, a mortgage banking firm in Columbia, S.C.

He’s just a babe in the woods. Those of us with a little more moss on the tree remember quite well the 1980-1981 period when interest rates jumped ten percent in a period of about a year.

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