Here Come Interest Rates
Nationwide mortgage rates have kicked up 25 bps over the last couple of weeks and the 10 yr. treasury has moved to 3.7% from it's low of 2.5% signaling that bond investors are expecting inflation. This led mortgage applications to fall 1.4% and refis to fall 77%.
General economic indicators have been improving which could lead to bond investors demanding higher yields in order to invest in fixed income. As this occurs, buyers of mortgage backed securities are going to demand higher rates therefore causing the mortgage rates to rise.
Now, the Fed suggests that core inflation remains extremely low (under 1% yoy) and hopes that QE2 will keep long term rates low, increase loan demand and satisfy bond investors with low yields. However, if you look at inflation including energy and food, the level increases to 1.7% yoy, with energy up over 7% and food at 1.5%. These numbers are shown by rising gas prices and the fact that commodities have jumped the last quarter with futures for ag. commodities like corn up 27% last quarter.
Sure looks like these historic mortgage rates won't be around for long.