Mortgage rates perk up as economy rises
By Laura Bruce • Bankrate.com

The choppy mortgage rate market continued its upward trend this week.

The benchmark 30-year fixed-rate mortgage rose 6 basis points to 6.07 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey have an average total of 0.32 discount and origination points. One year ago, the mortgage index was 6.23 percent.

The 15-year fixed rate mortgage rose 6 basis points to 5.38 percent. The one-year adjustable-rate mortgage rose 3 basis points to 4.06 percent.

With little in the way of economic data, it's corporate earnings reports that have been driving the market the past week.

Upbeat earnings news means less demand for long-term debt and that means higher bond yields. As bond yields increase, so do mortgage rates.

Bankrate senior financial analyst Greg McBride says the mortgage market will remain choppy, but the trend is for rates to go higher.

"Good earnings news has fueled optimism regarding the economic recovery and investor demand for stocks so, overall, we'll see higher rates. But as long as sufficient pessimism remains surrounding the job market in particular, we are very likely to see plenty of volatility and rates that don't move either straight up or straight down."

Ken Mayland, president of ClearView Economics, also sees mortgage rates in an upward trend and says the rising stock market will bolster the direction.

"My inclination is that the stock market will keep doing better. As the stock market continues improving, investors may migrate from the fixed income market to the equities market. That will make mortgage money scarcer and, therefore, more expensive."

One ingredient that has been missing from the recovery is job growth; but even that area is now showing some optimism.

"I'm confident that jobs will pick up," says Mayland. "Productivity growth is almost synonymous with profit growth. Eventually, you need more goods to sell, so you need more workers to produce that higher level of business activity. It's inevitable that the higher productivity will lead to more jobs."

Bankrate's McBride also considers jobs the key component.

"A lot revolves around the job market. If we see consistent economic growth and consistent improvement in the job market, long term interest rates could begin to rise in a more dramatic fashion."

It may be hard to believe prospective home buyers or folks looking to refinance wouldn't already have taken advantage of the super low mortgage rates we saw earlier this year. But as the economy improves, people who couldn't apply for a mortgage or refinancing because they didn't have a job or were afraid of losing their employment will form a new pool of applicants. As they come into the market, they may find it's best to move quickly.

"There are always borrowers on the fence," Mayland says. "People potentially looking to refinance or time their buying to the most advantageous mortgage conditions may find it increasingly difficult.

"The mortgage market is going to face increased headwinds in the form of a trend toward higher mortgage rates. We've seen the beginning of that this year. When did the mortgage market make its big turn? About mid June. When did it become apparent that the economy's prospects were starting to dramatically improve? About mid June."