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Mortgage Rate Spike: How High Will They Go?

Higher yields on 10-year treasury bondsare wreaking havoc on mortgage rates, but will they do the same to housing's recovery? A jump in rates was enough to prompt online home sale site Zillow.com to put out a "Media Alert" that the 30-year fixed had reached 4.34 percent—the highest rate reported on the site in 16 weeks.

Mortgage application
Mortgage application

"While the Federal Reserve expected a second round of quantitative easing to push yields down, or at least keep them low, the opposite appears to be happening," writes Zillow's Chief Economist Dr. Stan Humphries in the release. "This trend has only been exacerbated in the past week when fears increased that the bond-buying program might be facing political challenges which ran counter to market expectations that the government would be in the marketplace."

So how high will rates go?

Not much higher, opines Bob Walters over at Quicken Loans. "A sloppy Treasury auction last Tuesday began the sell off, and the beginning of the Fed's purchases for QE2 caused it to pick up steam Friday. Monday's strong retail sales number was all the excuse the bond bears needed to sell. A rally was attempted but was thwarted as selling escalated into the close," recounts Walters.

So rates are moving around quickly and violently, and while some might argue that shouldn't affect home sales, which are usually a long-term, bigger picture purchase, they certainly did last week. Refinances fell off a cliff last week, down 16.5 percent and purchase applications were down 5 percent, according to the Mortgage Bankers Association's weekly applications survey.

Real estate professionals have been touting fantastic affordability in today's housing market, with low interest rates and lower home prices combining to open doors for many more potential buyers. But I continue to believe that uncertainty trumps affordability at every turn. Just take a look at household formation, which continues to fall despite improved affordability.

With 7 million borrowers either facing or already in foreclosure, big banks facing whippings in Congress and many-fold investigations over foreclosure practices, and home prices taking a turn for the worse, rising mortgage rates will only put another barrier in front of would-be buyers. 4.34 percent is still an historically, ridiculously low interest rate, but a quarter-point jump in mortgage rates inside of a week is a bullet to buyer confidence.

Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick