Rates jump to 16-week high mark

Just like that -- wham! -- mortgage rates bounced upward by a tenth of a percentage point.

The benchmark 30-year, fixed-rate mortgage rose 10 basis points to 6.42 percent, a Bankrate.com national survey of large lenders found. A basis point is one-hundredth of 1 percentage point.

The mortgages in this week's survey had an average total of 0.26 discount and origination points. One year ago, the mortgage index was 6.69 percent; four weeks ago, it was 6.27 percent.

The 15-year, fixed-rate mortgage also rose 10 basis points, to 6.15 percent. The 5/1 adjustable-rate mortgage rose 8 basis points, to 6.32 percent.

The 30-year rate hasn't been this high since the last week of January, when it was 6.42 percent. It dropped abruptly after that, rose a little, then lingered. In the previous two months, the 30-year fixed had been locked inside a narrow range, from a low of 6.22 percent to a high of 6.32 percent. Then, this week, it wrestled itself free from its straitjacket. The question is why.

'Nobody really knows'

"I think the answer is nobody really knows," says Dick Lepre, senior loan consultant with Residential Pacific Mortgage in San Francisco. "There is an underlying sentiment that nobody is very confident about when the Fed is going to start easing." And that leads investors to shy away from Treasury notes, causing their yields to rise, and leading to accompanying increases in mortgage rates.

The common explanation for this sort of jump in rates is that investors sold their bonds and bought stocks. That's an overly simplistic way of explaining investors' behavior, Lepre says, but there might be a kernel of truth to it, in a broad sort of way.

Even if that's what happened, it doesn't explain why investors dumped those bonds for stocks. Was it uncertainty over the timing of the Federal Reserve's next rate cut? Maybe. That explanation is as likely true as any other.

Mortgage rates tend to move up and down in response to myriad economic factors. The most important of these factors is inflation and investors' expectations about future inflation. The most important economic releases, such as the consumer price index and monthly employment report, can send mortgage rates zooming up or crashing if they deliver surprises.

Technical factors

Lately the economic reports have been about as surprising as a valedictorian's report card. In the absence of market-moving economic information, Lepre looks at the technical indicators -- the short-term trends in bond prices. And the technicals have been sending conflicting signals, depending on whether one looks at daily, weekly or monthly changes.

There are always some homeowners who are thinking about refinancing their mortgages, and you might expect an increase in mortgage rates to force them to jump off the fence and apply for loans before rates go even higher. But that doesn't appear to have happened. Applications rose 1.6 percent last week, Mortgage Bankers Association figures show.