Along with mortgage rate trends, make sure to check out the mortgage rates forecast column to get a deeper look into the future of mortgage rates.

There was a very fitting article over at Calculated Risk on Wednesday.  In the article, the author illustrated the point that mortgage rates and 10 year yields have had a very high correlation since 1971.  From historical data, the current ten year yield of 3.7% suggests a 30 year mortgage rate around 5.6%.  Yesterday, Freddie Mac reported average mortgage rates at 4.91% which is a jump of .09% from last week.  This totally caught me by surprise until I looked at the 10 year yield, now it seems quite obvious that mortgage rate trends are going to cause rates to head higher for quite some time.

This is quite an interesting time as never before in the history of the United States has the concept of the government buying back mortgage backed securities (MBS) been the case.  With so many trillions being wrapped up in mortgage backed securities, the government decided to start buying these up.  The idea was that the purchases of MBS would force mortgage rates lower which would a cause a spark in interest in the housing market.

For almost two full months mortgage rates have been under 5% and been steadily decreasing.  Mortgage rates continued to decrease even when the Ten Year Treasury Yield was increasing; this almost never happens.  The interactions of the government were creating false mortgage rates but in the long run free markets will determine true mortgage rates.  We are now seeing this as mortgage rates bounced last week and I would predict that we will continue to see rates head higher as the ten year treasury yield remains in an uptrend.

What does this mean for the overall housing market?  Bad news!  Ben Bernanke and President Obama were hoping to spark the interest of new home buyers by offering them many tax benefits and the chance to get a new home at mortgage rates unheard of from a historical perspective.  Well, home buyers will still get the $8,000 tax cut if they purchase before December 1st, 2009 but it looks like those low mortgage rates have come and gone.

Will the rising interest rates hurt the overall housing market?  How could they now?!?  If individuals were reluctant to buy a home when mortgage rates were 4.8% then who is going to buy a home when mortgage rates are headed back to 5.5%?  That could be the difference in over $50,000 in interest over the course of a 30 year home loan.  I am not sure where the next idea is going to come from for the current administration but I sure hope they have a few tricks up their sleeves.

It has also been reported that most of the foreclosure modifications are defaulting.  Once again, this is very bad news for the housing industry.  If more homeowners are getting foreclosed upon there will be much more supply on the market.  Housing supply is exactly what this country does not need.  In a bit of good news, April Housing supply came in at 10.1 months versus 10.4 months last April.  This is a step in the right direction but we still have TEN months of housing supply on the market.

In April we had historically low mortgage rates, the Making Home Affordable Plan was in effect, tax credits were given to new home buyers and President Obama was encouraging all new home buyers to get out and buy that new home.  With all the measure taking place, we still only saw a nine day drop in housing supply?  I am extremely worried that the measures taken by the Federal government are not only not working, but they are devaluing our currency.

By buying back TRILLIONS of dollars in mortgage backed securities the US Dollar is falling off the face of the earth.  As I sit in my office I see CNBC talking about the dollar right now and how it has declined under 79.  Before the move by Ben Bernanke to buy mortgage backed securities, the US Dollar was at 87 and in a strong uptrend.  Since then, the dollar has seen a steady decline below the 200 day moving average and it looks like support is nowhere to be had.

So, the housing market remains in extreme trouble, the US dollar is tanking and the unemployment rate continues to rise in most states.  This economy is getting better?  Umm, I would love for someone to prove to me, with DATA, that the economy is actually getting better.  I know most data is a predictor of the economy, but there is nothing to prove that things have turned around.  Yes, the stock market has seen a steady increase over the last three months but that is on the hope that earnings will come in better than expected.  Have any of the major United States corporations actually shown that they are producing strong earnings?

Let me answer that for you, NO!  Hell, today the government decided that the taxpayers should own GM.  Thanks a lot, just what I want, to own another shitty company that is going to waste taxpayer dollars.  So lets see, the taxpayers now own Freddie Mac, Fannie Mae, AIG, and GM.  Bankruptcy is essential to free market capitalism, let these companies go bankrupt!  We, the taxpayers, do not want our hard earned money to go towards propping up companies that have been extremely unsuccessful.

Overall, the government has done everything in their power to create false mortgage rates but the free market will ultimately win out.  When this happens and mortgage rates go back to 5.5% we are likely to see another strong downtrend in the overall housing market.  This is very bad news for current home owners but it is the truth.  The best case scenario is to not worry about the overall value of your home but enjoy what you have.  Mortgage rate trends have reversed and are likely to head higher, so please expect home values to decline with this being the case.