Realty Check

Mortgage Rates Soar: Are More Foreclosures Ahead?’s weekly national survey of large lenders shows the average rate on the 30-year fixed is up to an 11-week high.

No question rates have been volatile since the beginning of this year, but the latest survey is up to 6.20 percent on the 30-year (avg. points: 0.47) from a low of 5.57 percent in January.

The culprit is fears of inflation, thanks to high gasoline prices. But even more troubling is the chance that the Fed will raise interest rates, which don’t correlate exactly to the 30-year fixed, but which will push up rates on some adjustable-rate mortgages and home equity lines of credit.

In a speech last night, Dallas Federal Reserve President Richard Fisher said:

"If inflationary developments and, more important, inflation expectations, continue to worsen, I would expect a change of course in monetary policy to occur sooner than later."

Them’s fightin’ words! So does that slow the recovery in housing even more? Well, I say on the one hand; it won’t help.

But on the other hand, the mortgage market today is less about rates, which are still historically low (last year at this time the 30-year fixed was at 6.47 percent) and more about your credit quality, the size of your loan and how much money you can afford to put down.

The spread on the jumbo is still well over a full point, and if you don’t have 20 percent to put down on your home, you can forget that 6 percent on a conforming.

I worry more about the effect on the adjustables that folks already have. Payment reset shock has been fuelling loan defaults, but it has been moderated somewhat by the lower interest rates. Throw those low rates out, and you’re looking at more borrowers handing in the keys.

Questions?  Comments?