Mortgage rates have risen over the past week over .5% to the highest levels we have seen for 6 months. The main factor at play that has caused this has been the oversupply of money that is being pumped into the system in the form of government bond auctions.
The markets yesterday went into a selling frenzy as fear of impending inflation caused investors to flee from long term bonds, a negative for mortgage rates. Although there are other factors involved, inflation fears along with over supply have been the main influences in the current trend.
Inflation is the enemy of mortgage rates as higher inflation erodes the value of a long term investment such as a mortgage-backed bond. Simply put, if an investor holds a long term bond at a low rate, say 4.5%, and inflation rises to say, 3%, the value of that investment is minimal. At current inflation rates of less than 2%, a 4.5% long term investment makes sense.
