It's So Hard To Say Goodbye To Yesterday

If you've been following mortgage rates over the last month you've likely noticed a quick and steady climb.  In fact, since a low of 4.5% on November 27th, 2009 to around 5.25% today (December 30th, 2009) they've done nothing but go up. 

What's Going On?

Mortage rates are going up.  And this rise in mortgage rates is something I've been expecting for a few months now.  Mortgage rates are on their way up, likely to 6% or more over the next few months

Why Is This Happening?

Because that's what they were about a year ago (and where they would be today) before unprecedented intervention by the Federal Reserve.  It's not the result of the economy is recovering ... the economy isn't in recovery mode.   Last year the Federal Reserve starting their campaign to purchase $1.25 Trillion in mortage backed securities (MBS).  That program is scheduled to end in March, 2010 and one year into the game they've spent $1.07 trillion.   So with about $150 billion buring a hole in Bernanke's pocket we've got about 2 to 3 months left of low mortgage rates, right?

Not so fast...

If you subscribe to the "theory" of markets as discounting mechanims (meaning Wall Street traders anticipate how the Fed monetary policy and rates will affect future value in this scenario) then the market will adjust quicker than the Fed can spend the remaining $150 billion.

What Does This Mean For You?

All signs point to mortgage rates being above 6% before March 2010.  So if you're a buyer it would make sense to call your preferred lender and talk about what it means to lock in at current rates (30 or 60 days) as you look for your next home.