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Mortgage Rates Rise

February 23, 2008

I get asked about rates a lot. The public’s perception is that; if the Feds are lowering rates then mortgage rates should be dropping also.

Mortgage rates follow the TBill – not the inter bank offer rate – and the TBill is rising fueled by inflation worries.

I really like Mark Dotzour’s explanation below:

COLLEGE STATION (Real Estate Center, Reuters) – In the Feb. 8 edition of RECON, Real Estate Center Chief Economist Dr. Mark Dotzour proclaimed that there will likely be no better time than the present for home refinancing for years to come. Turns out he was right on the money — less than two weeks later, mortgage rates were on the rise again.
“We’ve seen almost a three-quarter percent jump in rates on 15-year mortgages since I made that call,” Dotzour said.
Rates for fixed 15-year mortgages now average 5.55 percent, while rates for fixed 30-year mortgages are averaging 6.09 percent, up 0.37 percent from the previous week. Rates on one-year adjustable-rate mortgages (ARMs) remain at 5.72 percent.
According to the Mortgage Bankers Association, the seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ending Feb. 15 fell 22.6 percent to 822.8, the lowest level since the week ending Jan. 4.
“I think we’re in one of those weird situations where the Federal Reserve is likely to cut the one-day interest rate to banks, which will lower short-term treasuries, but the ten-year treasury, which is what mortgages are priced on, is going to go up because of the continued fear of inflation,” Dotzour said.
“Commodity prices are going through the roof and bringing back big-time fear of inflation, and that’s starting to get priced into the ten-year treasury, which is going to mean mortgage rates are likely going to continue to go up,” he said.

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