Last week’s 0.25% increase in 5 year fixed mortgage rates is being followed up with another 0.15% increase effective tomorrow. You may not see a change to any of the banks’ posted mortgage rates, but the best discounted mortgage rates will be 0.40% higher than they were 2 weeks ago.
The sudden increase in fixed mortgage rates is a direct result of Ben Bernanke’s policy announcement south of the boarder. Positive projections for economic growth, unemployment and inflation are the culprits. The Fed’s position is that as unemployment dips below 7% quantitative easing will be reduced and dips below 6.5% will cause increases to the prime lending rates.
All this caused a sell-off in the bond market as investors scrambled to increase their holdings in stock. The bond sell-off caused prices to drop and yields to rise sharply. Whether this mortgage rate increase is a temporary spike or the new norm is yet to be determined. The only certainty is that the investment community is tired of the prolonged recession and ready to jump back to stocks. Time will tell if this marks the turning point for the US economy.