After slipping last week, mortgage rates moved up this week better reflecting the trend borrowers can expect in the coming months.
That means iron-clad mortgage rate locks and speedy loan closings should be the strategy of choice for home buyers as well as refinancing and equity-tapping home owners
Inflation was brisk in May spurred by higher housing, gasoline and energy costs. The seasonally adjusted Consumer Price Index rose 0.4 percent in May, representing a 5.2 percent annual rate. For all of 2005 the rate was only 3.4 percent.
That kind of inflation erodes consumer spending power by making prices move faster than wages. To curb inflation, the Federal Reserve raises the cost of money.
And that's just what analysts say the Fed will do on June 29 for the 17th consecutive time, this time raising the benchmark short term interest rate from 5 percent to 5.25 percent.
When the fed increases the cost of money to curb inflation, short term consumer borrowing costs for credit cards, home equity loans and adjustable rate mortgages likewise take a hike.
Mortgage interest rates have fallen eight times this year, but during the first 24 weeks in 2006 they've risen twice as often, according to Freddie Mac's Primary Mortgage Market Survey.
Last week, Freddie reported the 30-year fixed-rate mortgage (FRM) averaged 6.62 percent, down from the previous week’s average of 6.67 percent.
This week the average inched back up to 6.63 percent, exactly one full percentage point higher than they were one year ago.
"Mixed economic indicators are causing some volatility in financial markets. This invariably leads to the fluctuations in mortgage rates like what we have seen recently," said Frank Nothaft, Freddie Mac vice president and chief economist in a prepared statement.
"Still, there has been no drastic movement in mortgage rates and we see nothing on the horizon that would bring about any extreme rise or fall in rates going forward. Our economic forecast still indicates strongly that, even with gradually rising rates, 2006 may well be the third strongest year on record for housing," he added.
Still, the pinch is on. From May 2005 to May 2006 inflation is up 5.7 percent.
Consumers pay $3 a gallon for gasoline, transportation costs are up nearly 21 percent and business is passing onto consumers energy costs they have soared by 35 percent.
Housing costs keep going up too.
The national median price of all homes -- single-family, townhomes, condominiums and co-ops -- rose 4.2 percent from $214,000 in April 2005 to $223,000 this April, according to the latest figures from the National Association of Realtors.
When it comes to repeat sales of single-family homes, the Office of Federal Housing Enterprise Oversight said home price appreciation was up by 12.54 percent in the first quarter this year.
Home price appreciation is slowing but it certainly hasn't stopped.
A report from New York City-based Corzen Real Estate Indicators indicates the supply of homes is still too short in most metros to exert enough downward pressure on home price inflation and most bubble theorists have gone into hiding.
More bubble-speaking pie holes were shut by "Assessing High House Prices, Bubbles, Fundamentals and Misperceptions" by Charles Himmelberg, Christopher Mayer and Todd Sinai with the Federal Reserve Bank of New York which surmised homes by and large are not overpriced -- yet.
"Our evidence does not suggest that house prices cannot fall in the future if fundamental factors change ... . However, this fact does not mean that today houses are systematically mispriced [sic]," the report deduces.
At Harvard University, the Joint Center for Housing Studies' recently released "2006 State of the Nation’s Housing Report" agrees with the federal bank's assessment.
With sellers continuing to land asking prices and often more, a growing number of would-be buyers are taking a second look at more affordable rentals, and that's spurring inflation in that market, according to a host of rental market monitors. Some rental housing markets are enjoying high occupancy rates and rental increases averaging as much as 5 to 6 percent, compared to last year.
With so much inflation, higher mortgage rates, perhaps moving higher faster, aren't far behind.
The economic fundamentals apply.
