Why the recent increase in interest rates?  To answer this you can take your choice from a variety of reasons.  Below I have listed 4 of the major contributing factors.

1.  The Government is saturating the Bond market with Treasury Bonds to pay for its massive government spending programs.  Due to a fear that the auction would not be well received with investors the Treasury postponed their auction last week and moved it to this week.  This is one of the largest Treasury Auctions in History.

2.  The United States has had a AAA credit rating since World War 1 and it is now in question due to the large amount of debt it is incurring to fund its spending programs.  Investors are now demanding a higher return on their investments.

3.  Stock Market rally.  Recants reports hint the economy may be hitting bottom and a showing signs of a possible reversal.  This entices investors to leave the bond market and go to the stock market for a quicker return.  Mortgage Backed Securities (MBS) are traded on the Bond Market, so when the stock market does well the Mortgage Bonds usually struggle causing rates to go up.  The added supply of Treasuries does not help to say the least.

4.  Due to recent low interest rates the Mortgage Market is saturated with a massive amount of Mortgages to be bought and sold.  The Feds are buying some of these but it is like trying to sop up a flood with a sponge.

5.  Another reason for higher rates is inflation.  There is speculation that the Dollar will drop in value due to the massive Government spending and Inflation is the arch enemy of Mortgage Rates; higher inflation or even the fear of inflation can cause rates to skyrocket…

Where will rates go from here?  I expect the Stock Market to have a correction as the Dow and the S&P 500 both test levels or resistance and the Mortgage Market bounces off its levels of support causing rates to reaming in the mid to high 5′s vs. the mid to high 4′s.  If the Treasury Auction is not well received and or inflation continues to be a concern then it is possible for rates to hit 6% or higher….  This weeks Treasury auction and Thursdays retail sales report will provide some guidance.

Even with the rise in interest rates is still a great time for or home buyers.  With the drop in home values, home buyers still have an incredibly low payment even with a 6% interest rate.  Historically speaking 6% is a fantastic rate!

Provided by Mike Dorman www.DormanTeam.com