Friday, May 8, 2009

HISTORICAL TRENDS SUGGEST HIGHER RATES COMING SOON

The monthly chart to the left shows average conforming, 30-year fixed mortgage rates since 2006. The blue bars represent May, June, July and August.

Beginning near the start of May of each year, mortgage rates embark upon a multi-month climb before peaking in late-July or early-August. Then, into the New Year, mortgage rates recede.

We're currently on the front-edge of the Summer Rate Spike pattern.

On April 30, mortgage rates began to ascend. Slowly at first. Then, this week, they barreled higher. In some cases, conforming mortgage rates are up by a half-percent.

The speed and force of the uptick is representative of both the respect and the fear that Wall Street has for Washington and what it's done to stimulate the economy this year. Investors know the stimuli are working -- they're just scared it's working too well and will lead to massive inflation.

Inflation is the enemy of mortgage rates and causes them to rise.

Therefore, use the mortgage rate chart to your advantage. You can see what's happened to mortgage rates in each of the last three summers -- it looks like 2009 is about to follow suit. And when the mortgage market turns for the worse, it's going to turn quick. Be ready for it.