Mortgage rate trends are setting up for a very interesting July.  The 10 year treasury rate is at the bottom of its upward trend channel and hitting support at the 50 day moving average.  We all know that as the 10 year goes, so go mortgage rates.  If we see a breakdown of the 10 year, it is likely it could head all the way to 3%.  If this happens, look for daily mortgage rates to retrace to those historical lows that we saw in March.  If the 10 year finds strong support at the 3.4% 50 day moving average, it is likely it will push higher to 4% again.  If this is the case, we could see mortgage rates exceed 6% before the end of the summer and possibly by the end of July.

There is no way of know what is going to happen with mortgage rate trends because the government has played such a big part in creating artificial mortgage rates.  Since March, the Federal Reserve has been buying up mortgage backed securities which has helped to put a cap on low mortgage rates.  In an even bigger effort, the Treasury department has been auctioning bonds at will to try and force the 10 year treasury rate lower.  If they continue to do this after the July 4th weekend, it is likely we could see another breakdown of the 10 year treasury rate, but that might also mean we see a severe breakdown of the stock market as well.

The question that our government official must answer is “how much is too much?”  For several months now we have been pushing average mortgage rates around, but eventually free market capitalism is going to work and the markets are going to set interest rates.  Sadly, if the government continues to try and intervene, we could see a sling shot effect in daily mortgage rates which will cause great pain in the housing market.  With the government interacting, sometimes mortgage rate trends are not even useful.

We all know how bad the housing market has been over the last two years, but imagine how bad it could get if average mortgage rates go to 6% or even 7% in the short term.  If the housing market did not see a recovery when mortgage rates were under 5%, it is going to be very bad news if we see interest rates shoot up, which is very possible.  I will continue to give daily mortgage rates as compared to the 10 year treasury rate and show the correlation of the two each morning.  Please make sure to return to Subprime Blogger to see where mortgage rates are headed by looking at the trend of the 10 year treasury rate.