3 Reasons for Rising Mortgage Rates

Last week on our blog, we discussed how mortgage rates had risen for the third straight week after previously setting all-time record lows. This begs the question, what are the driving forces behind the rise in mortgage rates?

A recent article from TheStreet.com takes a look at 3 different reasons for the rising mortgage rates, along with what this means for the outlook of the mortgage industry.

Here are the main takeaways on why mortgage rates are rising:

1) Treasury bond yields are up.
10-year U.S. Treasury notes yielded 1.68% in the past week, which is a .18%  increase from the beginning of August. These rates are still very low in the historical sense of things, but mortgage rates do follow the direction of Treasury rates, which are currently rising.

2) Improved housing data.
Freddie Mac has noted that home sales are climbing after months of sluggish activity. The median home sales price has also risen in the past year by 9.4%. As a typical rule of thumb, the healthier the housing market is, the more interest lenders charge for home loans.

3) Quiet Eurozone
For the past months, financial troubles in parts of Europe have struck fear into the hearts of many economists and real estate agents who were concerned over a possible global financial meltdown. More recently however, the relative quiet has been good for the global economy.

The article goes on to note that U.S. mortgage applications fell by 7.4% for the week ending August 17, 2012. Decreasing mortgage applications during a period of increasing mortgage rates most likely means that homebuyers have backed off on trying to get a mortgage.

It is important to remember that a single month of numbers do not make the market, but if September’s numbers continue, it could be big trend for the mortgage industry.

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