Mortgage Rates Keep Climbing
-- July 24, 2003

The housing boom is heading for a bust as mortgage rates keep climbing. As we told you yesterday, mortgage applications are already falling precipitously. That's because rates have been climbing non-stop since mid-June. In the five weeks ending July 25, rates have skyrocketed 73 basis points from 5.21% to 5.94%, according to Freddie Mac. In fact, the benchmark 30-year loan took its biggest weekly jump in nearly five years!

That's a swift rise to prospective home buyers, especially considering that mortgage rates have been falling like a rock for the past two years. It's sure to put a damper on new home buying.

The rise will have an even bigger impact on home owners looking to refinance. Home owners have been cashing out the equity in their homes time and again as rates dropped, refinancing multiple times. This has fueled consumer spending despite chronic and massive unemployment. Now, though, that income stream is drying up.

So, look for rising mortgage rates to give the economy a one-two blow. First, it will knock the wind out of the housing market. Second, it will kick the legs out from under any chance of recovery in this already bruised and battered economy.

related article: Mortgages Up For 5th Straight Week