Interest Rate Surveys

Source: Freddie Mac

'Consistent with the direction of 10-year Treasury securities, average rates on 30-year fixed-rate mortgages drifted up in the past week to levels close to those at the beginning of the month,' said Frank Nothaft, Freddie Mac chief economist, in a statement. 'Also tracking short-term Treasury notes, average rates on 1-year adjustable-rate mortgages (ARMs) dropped by 5-hundredth of a percent.'

Source: Bankrate National Weekly Mortgage Survey

Before the most recent Fed rate cut, fixed mortgage rates were falling. The average 30-year fixed mortgage rate, which was 6.75 percent just two months ago, had fallen to 6.31 percent two weeks ago.

After the Fed cut short-term interest rates by a half percentage point on Sept. 18, fixed rates started to rise. For the second consecutive week, the average rate increased at the top 10 banks and thrifts in the top 10 markets.

Both the 15-year fixed and the 30-year fixed are on the rise. ARM rates, on the other hand are starting to decline.

According to Bankrate (and a little thing called common sense), fixed mortgage rates remain the most attractive option for most borrowers.

Why Long Term Rates are Rising

Throughout the year, the Fed has claimed that inflation was the biggest risk to the economy, and the reason why the Committee was choosing to keep benchmark rates steady. Sometime in August, the Fed chose to shift priority to housing and the current credit crunch.

Last month, they slashed interest rates by half a percentage point-some say to bailout banks/housing, and others say to avoid recession.

The common misconception was that the Fed's short term rate cut would cause a drop in long term rates (i.e. 15-year/30-year fixed mortgage rates). But fixed rates do not work that way.

Fixed mortgage rates are related to yields on ten-year Treasury notes. When the Fed cut the rate, inflation worries increased, which in turn caused the yields on ten-year government bonds to move higher.

It is highly likely that fixed mortgage rates will continue to move up until inflation worries are eliminated or eclipsed by another pressing concern.