The 10 year treasury rate yield shot up HUGE last week to the tune of 10%!  This is going to force mortgage rates to react this week.  It would not surprise me to see daily mortgage rates work their way all the way up to 5.5% before some consolidation.  For those of you who were waiting for mortgage rates to drop below 5%, well, I think that is now out of the question for quite some time.  The 10 year yield is now above the support level of the 50 day moving average and we are looking at the yield headed towards 4%.

If the yield does hit 4%, it will be likely that mortgage rates will be somewhere around 6%.  As I have been saying for quite some time, this is very bad news for the overall housing market, but it might flush the bottom out as higher mortgage rates are going to bring even lower home prices.

The equation used for the correlation between mortgage rates and the 10 year treasury rate is

y = 2.7283(x)^2 + .5881(x) +.0308.

10 Year Treasury Rate – 3.65%
The correlation shows that the 30 year fixed rate should be approximately 5.52%.  Actual rates…

30 Year Fixed Rate Mortgage – 5.59%

Please check out the daily Subprime Blogger rant; today I let Mr. Bernanke know how I feel:

Oh, so you are planning now for the “restoration of fiscal balance?”  I call bullshit!  The more statements that you make, the more I realize that you are full of shit Mr. Bernanke.  Printing money in an attempt to spend our way out of this recession has not worked in the past so why do you think it will in the future?

Read the entire article here: Ben Bernanke, Please let the Markets Set Interest Rates

Current mortgage rates are very likely to move higher in the next few weeks.  Since the middle of June, average mortgage rates have pulled back from an intermediate high, mostly because of the sell off in the 10 year treasury rate.  The government continues to auction off bonds which is saturating the market; this has caused the 10 year to pull back all the way to its 50 day moving average.  After going from 4% down to 3.45%, I find it highly unlikely that we will see the 10 year break the support level of the 50 dma.

Today we are seeing a push higher from the 10 year and I would expect that to continue throughout July.  Current mortgage rates are likely to follow the trend of the 10 year treasury rate as they have a strong correlation.  We don’t know where the 10 year uptrend will stop at, but if it returns to 4% look for average mortgage rates around 6%.  Obviously this would be very bad news for the housing market as it would cause prices to continue to fall.  Maybe this is exactly what we need to finally flush out the bottom in the housing market and start to head higher.

The scary part about current mortgage rates heading higher is the fact that it will reduce the amount of mortgage applications by quite a bit.  There have been several major news headlines stating that mortgage applications have shrunk due to uncertain mortgage rates.  You can be rest assured that the amount of applications will decline even more if daily mortgage rates reach the 6% level.

To make a strong prediction of where mortgage rates are headed make sure to keep up with the 10 year treasury rate.  If the treasury rate starts to head higher, it is almost a given that the 30 year fixed rate mortgage will follow.  I am sure the government will try to keep mortgage rates around the 5% range, but eventually the market is going to set interest rates.

Overall, mortgage rates are still well below where they were a year ago, 6.09%, but a jump like this has been very disturbing to the American public.  As I pointed out earlier this week, there has been a surge in google searches related to mortgage rate predictions, weekly mortgage rates, mortgage rates going up or anything the like.  The sentiment for the last six months has been that mortgage rates are going to continue to go down because the overall long term trend is down.

That was all fine and dandy until free markets finally started to work.  The government had created artificial mortgage rates for quite some time as they were buying back mortgage backed securities and utilizing the Making Home Affordable plan to help home owners refinance as well as get low mortgage rates for first time home buyers.  With all of these factors being the case, even with low mortgage rates, home prices continued to fall.

This leads me to a very disturbing point.  If home prices continued to fall even when mortgage rates were under 4.8% what is going to happen if mortgage rates work their way back up to 6%?  Well, honestly, the same thing that has been happening since June of 2006; home prices are going to continue to slide.  There are several markets in the United States that have remained strong through this economic downturn but that is likely to change if mortgage rates continue to jump.

Another unforunate factor with mortgage rates moving higher is that many home owners have not gotten a chance to refinance.  Not that rates are back above 5% I will be willing to say that many home owners who were debating getting a refi will no longer even consider it a possibility because the costs are going to outweigh the savings now that rates have moved up.  Even if there will be some savings by refinancing, some homeowners do not want to go through the process especially if their home value has fallen.

Overall this is a very tough week for the housing market.  You may here analysts on CNBC or FoxBusiness saying that higher mortgage rates did not hurt the housing market but use common sense.  If extremely low mortgage rates did not help home prices, it is obvious that higher rates will not be of any assistance.

This week mortgage rates ticked up a WHOLE .09% and the media is in a complete frenzy.  I have seen more “mortgage rates going higher” articles this week than I have over the last eight months COMBINED.  I realize that mortgage rates have been in a steady downtrend since October, but is a short term bounce higher really that big of a deal?  There is very little doubt that the 10 year treasury yield will bring mortgage rates higher, but do you really think the government is going to let them get that high?

I will answer that question for you, NO, the government will not let mortgage rates get to a point where the interest in the housing market is gone.  I know that free markets eventually work themselves out, but the government plays a huge role in where money is going in this country.  We have already seen Ben Bernanke sink over a TRILLION dollars into mortgage backed securities and I am sure it will continue in an attempt to keep mortgage rates low.

Even if mortgage rates do tick up an entire .5% they are still at levels most people would have died for in the past.  If you ask anyone over the age of 30 if they would have gotten a mortgage rate under 6% how would they feel, many would answer ecstatic.  We are in a time where mortgage rates are near histortic lows and we should take advantage of it.  Even if these are articficial mortgage rates that the Fed has pushed lower, they are still rates that are attainable to you and I.

The question is, why is the media so crazed about mortgage rates ticking up.  I honestly believe it is psychology.  For several months now all we have seen is that mortgage rates are LOWER.  We have gotten complacent with the idea that there has been a downward trend that has not been broken.  Now that rates have bounced a little bit and the yields are heading higher, the media wants to throw out something different.

To compound matters, the public is feeding into the frenzy.  If you do research on the searchs for mortgage rates, mortgage rate trends, mortgage rate forecasts, mortgage rate predictions, and other related searches, you will see a spike over the last week.  Human psychology is very interesting and just because something has changed a little bit has gotten the attention of almost all home owners.

It will be very interesting to see if these trends continue if mortgage rates head lower.  I am very surprised that there is such a great deal of interest but I cannot complain as interest in my field also makes me happy.  I would urge all of you considering getting a mortgage or refinance to get out there and educate yourself so you can lock in at some of the lowest mortgage rates in history.