Bond dealers expect mortgage rates to rise

There was a short article in the Wall Street Journal today regarding a survey conducted by the Treasury department. They asked their primary bond dealers to estimate the impact of the end of the Fed's Mortgage Backed Security (MBS)program to mortgage rates. The MBS purchase program is scheduled to wind down by the end of March 2010. Respondents to the survey indicated that rates may rise as much as one percent from current levels. If those estimates proove correct, mortgage rates will be back in the 6% range by late spring. Every 1% in rate correlates to about 10% in purchase price for a homebuyer. That is, someone who qualifies for 250,000 at a 5% interest rate may only qualify for 225,000 at 6%. It will be interesting to see how this impacts the fragile recovery in the housing market.