Last year interest rates weren’t really a factor – people who were buying houses did, and those who needed to refinance out of an ARM or to pay off debts were able to. Since December, however, it’s been a whole new ballgame. Rates dropped to the lowest point in 50 years and virtually everyone could have benefited from refinancing. In the past few weeks, rates suddenly jumped up to a point higher for most people.

What gives? Luckily you don’t need an advanced degree in mathematics to understand what’s going on. Mortgage rates are a function of the Federal Reserve Bank’s monetary policy, the law of supply and demand, and government policy/intervention therefore:

• Rates were at a historic low from 3/18-5/26/09 because the Fed was buying a lot of mortgage bonds ( in order to increase demand), which drove rates down
• Eight weeks of low rates led to high loan volumes, so when FannieMae took the new mortgage bonds to the street, the Fed couldn’t keep up with the newly added supply. Excess supply led to lower bond prices, so higher interest rates resulted
• Enter geopolitics: economists started publicly worrying about inflation at the same time foreign bond buyers began wondering whether US bondholders’ rights would be honored or the government would begin treating them as GM and Chrysler. Liquidity went down, hence rates went up.

But what’s it really matter? Rates are still much lower than last year and home prices in many areas are lower than last year. The Fed is still committed to buying mortgage bonds to keep rates low.

As the recent supply is soaked up by the market, we may see rates trickle back down. People who didn’t get to take advantage of May’s rates may want to be ready to pull the trigger next time there is a dip, even if we don’t hit all the way to the 50-year lows again.

If you want to hedge that they might dip again, call me and we’ll get your credit pulled, your home appraised and everything ready so that we can pull the trigger on a moment’s notice.